Sometimes, when buying investment property you feel like you’re walking through a minefield. You look at properties available, have a licensed real estate professional draw up a contract, get necessary documentation from the seller and then, out of the blue the deal explodes! What appeared on the surface to be a solid investment suddenly vanishes into thin air. Now it’s back to the drawing board for everyone involved. What happened?
Were the expenses understated? Was the existing mortgage information incorrect? Were the rent rolls accurate? Was the property assessment misrepresented? Closely examining every investment property will usually reveal areas of concern that may need serious attention. If nothing else, be proactive, ask questions, seek total understanding of the property and its financial performance. By doing so, you will save a lot of time and eliminate the frustration of having to walk away from the deal.
For example, suppose the net operating income for a large apartment complex appears to be rather low. First, examine the expenses and verify their accuracy with the owner. If they are overstated, that will improve the financial picture. However, if the expenses are accurate, then look at each expense item to see where money can be saved. If the insurance appears too high, ask one of our HUNT insurance agents for a policy review to see if money can be saved. If the interest expense is too high, call HUNT Mortgage or a commercial banker and see what they offer. If the property uses a management company, are their rates competitive? If the complex does the landscaping and snowplowing, could they contract it out or vice versa and save money? Are the property taxes too high? Is the assessment accurate? Does the local municipality offer PILOT (payment in lieu of taxes) programs? Every major expense category can and should be examined for possible savings. In addition, examine the rent roll. Are the rents too low? When was the last rent increase? Is there opportunity to increase the monthly rates?
An experienced real estate salesperson can assist you in asking the right questions early on in the game. Certainly due diligence will uncover possible “deal breakers,” but why wait? Take it upon yourself to carefully study the numbers, look beyond what you see on paper and develop strategies to improve the rate of return.
The point being, work with your real estate agent to come up with alternatives. Take the initiative, and talk to other professionals: insurance agents, mortgage brokers, bankers, management companies, municipalities and landscapers etc. By doing so, you will improve the value of the investment and save yourself time and money. Contact a HUNT Commercial real estate agent today and find an experienced professional to help you make the right decisions!