How to Market a Duplex and Kick Your Image Up a Notch
We see it
throughout our profession. From those coveted designations we display to the
cars we drive. In real estate, image matters.
It seems
fitting, therefore, to offer a few ideas how those of you marketing duplexes and
other multifamily properties can add a professional quality to your
presentation, give your image an incredible boost, and help you avoid what some
construe as the not-so-professional practice of simply “throwing it up against
the wall hoping it sticks.”
It begins
with a correct concept about the investor.
“An
Investment Property Isn’t Home”
Keep in
mind that an investor buys an investment not a home, and amenities that might
sell a house don’t necessarily sell a duplex. A home buyer has a natural regard
for amenities that affect the family’s well-being. An investor on the other hand
doesn’t generally occupy the property; therefore, other than how they might
impact rents and rent-ability, it’s not the amenities, but the “bottom line”
that matters most to the investor.
So
relegate the amenities to the more relevant issue. Or in the words of a client
to whom I presented a very beautiful complex: “Jim, only women are
beautiful. How much money does it make?” And that takes us to the next point.
“How Much
Money Does It Make?”
Because
all investment property stands or falls on its numbers, you naturally appear
more professional to client and colleague alike when you present those numbers.
The most
common method would be to create an APOD (Annual Property Operating Data).
Loosely defined as a “snapshot” of a property’s annual income and expenses, an
APOD in fact offers a functional analysis significant to an investor. It states
the Annual Cash Flow (the “bottom line”), and in the better reports, provides a
computation for capitalization rate, gross rent multiplier, and other ratios
commonly used as “rules-of-thumb.”
To be
effectual, though, the APOD must consist of numbers that mean something. And
that leads us to the final point.
“Use
Meaningful Numbers”
1
Whenever
possible, compute the annual income based upon the actual rents (otherwise, make
it clear that the rents are “projections”).
2
Avoid the
temptation to claim zero-vacancy; vacancy rate is a real and normal
occurrence with investment property, so include one.
3
Use the
seller’s Schedule E tax form to determine costs for Trash and Utilities; don’t
guess; even worse, don’t omit them unless they don’t apply.
4
Whereas
Property Management may not be relevant for a duplex, for larger properties
(let’s say 8 units or more), make an allowance for it.
5
Compute a
cost for Maintenance & Repairs and don’t use the seller’s figure. As it happens,
repair amounts issued by sellers can be skewed with “non-recurring” costs (like
a new fence), or “discounted” costs (when a seller makes the repairs himself,
for example).
6
Finally,
include an allowance for Replacement Reserves (a theoretical reserve set aside
for the replacement of capitalized items like the roof). The appraiser
subsequently includes it, so it’s smart to address it upfront and make yourself
look good for anticipating it.
I like how you remind everyone that it is about the numbers!
I have had several people try to sell me on there deal say it was a great property. Well I really don't care what I want to know is how do I make money on the deal.
I agree. I am currently working on a deal on a beach house, 1.9 mil (700K under value and positive cash flow of $30K annually) and I haven't even gone to visit it yet. I have seen pictures of the inside and know that it is in very good shape, but the fact is I don't want to go in it and "fall in love" with it until the numbers and terms are right. Unfortunately, at this point the seller's agent doesn't seem to be taking me very seriously because I haven't gone to see the property yet (he must not have any investments of his own, I guess).
There's no question we have to run this business based on facts. Leave the "oh I gotta have it!"s for owner-occupants.