Investment Property Analysis (Pro Forma), Becoming an Asset to Investors.

6 Replies

Hey BP,

Feel free to scroll down to the Important Part.

I am a realtor in the Greater Philadelphia area. My goal/aim is to work with investors for two reasons. First, I am a finance guy, recent Drexel University graduate, and would rather work with people who appreciate the value of a property than those who struggle see past cosmetic problems. Second, I plan to invest myself, therefore through working with investors I can stand to gain an invaluable amount of knowledge and information through them and their experiences. 

With that said, I want to be a true investor's agent, I want to truly provide value to an investor and become someone who when I present an investor with an investment opportunity they can feel confident my numbers are accurate. 

For Flippers: I don't just want to say hey here is a beat up property, a comparable "renovated" property can sell for $X can you make it work...by the way, can I get the commission when you buy and then later sell the property? 

For Buy&Hold: I don't want to say hey this property is nice, you can rent it out for $X/month do your due diligence and get back to me...by the way can I get the commission when you buy the property?


IMPORTANT PART

I want to provide value to investors. I have identified a few ways in which I can do so, and would like feedback on how to better their quality from an investors standpoint. Also, suggestions on other ways to be of value to investors is greatly appreciated!

A) Well Organized and Reliable Pro Forma Investment Spreadsheet to accurately identify a properties investment potential.

For Buy and Hold (SFR)

I am a realtor so I understand all of the cost at closing from both the buyer's and seller's perspective so I will skip that part.

 Cash In-Flow:

1) Expected rental income

As a realtor, I have access to the MLS service and can search both active and historical rent based on area to identify a reasonably expect-able rental rate. Focusing on # of beedrooms, # of bathrooms and the over all quality of the home.

Cash Out-Flow:

1) Mortgage Rate/Payment (For those using financing to purchase property)

I have built and understand how to use an amortization schedule/chart.

2) Property Tax

Philadelphia has recently changed their assessment process and I am in the process of understanding they assess properties. More information here > http://www.phila.gov/OPA/Assessments/Pages/Assessm...

Also, by typing in the address or BRT Number into the following website I can determine the property tax as according to the City of Philadelphia > http://www.phila.gov/revenue/realestatetax/

3) Management Fee

My understanding is the typical management company charges roughly 10% of rental income to manage the property.

Way to add value: Build relationships with property management companies throughout the Greater Philadelphia area, making sure to screen the various companies responsiveness, professionalism, tenant screening process, tenant satisfaction (other key aspects to focus on is appreciated)

4) Rental Referral Fee

My understanding is a rental referral agent receives 1 months rent as commission.

Is this true even with a property management company in place?

5) Property Insurance (For Rental Property)

My understanding is that there are three types of coverage's  Dp-1 (lowest), DP-2 and Dp-3 (highest).

Does anyone know a reliable source/% of home value to use to estimate this cost? Also, what type of coverage do investors typically use?

6) Vacancy Ratio

Reading through other forums I have found that many investors use 10% of rental income as gauge for this cost. Is this a reasonable value to use?

7) Maintenance 

Reading through other forums I have found that many investors use 10% of rental income as gauge for this cost. Is this a reasonable value to use? Also, what about the potential for major maintenance costs (roof repair) ? 

8) Water Bill

My experience as a tenant was that one of us, the tenants, had to register with PWD (Philadelphia Water Department) and pay the water bill on top of our rent. Is this a typical practice?

9) Gas

My experience as a tenant was that one of us, the tenants, had to register with PGW (Philadelphia Gas Works) and pay the gas bill on top of our rent. Is this a typical practice?

10) Electric

My experience as a tenant was that one of us, the tenants, had to register with Peco (Philadelphia Electric Company) and pay the electric bill on top of our rent. Is this a typical practice?

11) Landscaping

Typical homes in Philadelphia do not have much, if any, grass. I would assume for those that do one could reasonably expect $40 a month max. Do anyone have more experience here?

12) Snow Removal

This is a season to season variable cost, does anyone know what a reasonable costs for snow removal may be?

13) Business Tax (Not actually included in Cash Out-Flow, factored in later)

How is a real estate investor viewed from a business standpoint. I assume/expect an investor to be taxed under the Net Profit "umbrella" which according to the City of Philadelphia is taxed at 3.924% (Resident) and 3.495% (Non-Resident) see link > http://www.phila.gov/Revenue/businesses/taxes/Page...

Philadelphia Investors is this correct?

WHAT ARE OTHER COST THAT I AM OVER LOOKING??

Cash In-Flow - Cash Out-Flow = Net Operating Income or Debt Coverage Raito

Net Operating Income x (1-Business Tax) = After Tax Income 

Net Operating Income / Property Value = Cap Rate

Net Operating Income / Initial Investment = Derived Cap Rate

Is a Duplex or Triplex not evaluated similarly?

B) Generating a list of Reliable Contractors

Carpenters, Electricians, Plumber, Roofers, Window guy etc..

Reaching out to contractors and evaluating them on factors such as:

1) Professionalism - They are insured and present themselves as a business not just a on the side guy.

2) Referrals - Follow up on referrals to insure work is completed with quality, insuring customer was satisfied with the overall experience of working with them and preferably finding contractors who work with investors and know the timeliness investors demand

3) Pricing - How do they price a job, should I focus on per sq. ft. or is their knowledge that investors are looking for low costs simply enough and competing quotes will determine lowest costs

WHAT ELSE?

C) Attorneys 

PA is a landlord friendly state but in case of tenant problems having attorneys that specialize in evictions would be good, no?

D) Knowing the Markets

I know the markets well and spend most my time studying and examining the various markets..

E) Property Management Firms

I had touched on this earlier: Build relationships with property management companies throughout the Greater Philadelphia area, making sure to screen the various companies responsiveness, professionalism, tenant screening process, tenant satisfaction (other key aspects to focus on is appreciated)


F) Being easily accessible to investors: promptly responding to phone and e-mail


How else can I be of service to an investor?

What are some other traits investors seek in a realtor?

I appreciate all feedback BP!

Thank You,

Geno

@Account Closed  

 You are correct on the insurance piece when discussing singles or duplexes, but DP1 is not the jargon most agents use.   We will typically use Basic, Special & Broad Form (Dp1, DP2 & DP3) as these are the terms applicable to commercial policies as well as personal policies. 

Another key distinction is you can have Actual Cash Value or Replacement Cost on any of the 3 coverage forms.  so do not assume you have the all the best coverage options by just asking for "Broad".

Hey Geno, great presentation! Impressed - what's rare is beautiful! 

@Jason Bott  Thank you for your feedback it is greatly appreciated.

Is there a general % to property price I could use to estimate insurance costs?

For Example: On a $100,000 property the insure is typically $600 or 0.6%...

@David T.  Thank You

@Account Closed  no, not purchase price.   You may be able to get to an average cost per sq/ft if you are dealing with very simulate properties in the same zip code. Unfortunately there are so many variables in developing an insurance rate, I don't think you can come up with an accurate % that would help you advise your clients.

@Jason Bott  thank you for your honest straight forward advise. 

Geno,

   I really like that you are getting familiar with the tax assessment process. I see a lot of properties that have high assessments from the before the crash. I'd love to see a predicted assessment value if a property is reassessed as part of a deal.

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