I suspect that what you are actually asking is for a marketing technique--
No techique works all the time-- it has to match with your product, target market and strategy for reaching that market.
A marketing strategy, of course, depends on your product and target market. Without some information about what the product or market is any answer to this question would be pretty meaningless.
Perhaps you would care to share what it is you are trying to sell?
You might try a hard money lender. www.rehabfunding.com has a 6 month no pay option if you qualify for it. Course, this will end up costing more than 32k unless the repair cost was somewhat inflated to begin with. Just a thought...
the bank held back the 32,000 and there should be a disbursement clause in your closing doccuments,have you checked? if not, then your other choise is to make a contract with the Contractor and have the bank sign it essuring him for the payment upon completion of the works. This leaves you out of any responsibility to him for the payment.
It appears that the escrow is part of the financing for rehabbing. However bank should not have problem paying for the completed work.
you may be able to get the bank to issue a letter showing money is available upon competion of work to the contractor. then have contractor negotiate with the bank about their definition of completion ( partial or full) In that case the contractor will be able to plan and finance the project accordingly, as it may not take more then a month for the completion of work.
Sham, i totally agree with Johna and CommercialKing in that the only 2 ways to change the cap rate is to either RAISE rents, or LOWER purchase price, in any way shape or form. Whether you purchase a buiding with lower than normal rents, and raise them, OR purchase a building that you can get the price down, I would check with a Realtor in the particular area that you are interested in to find out what cap rates were for recently sold multiples. I am also seeing in NJ that cap rates are somewhere between 4%-8%, which is very difficult to Positive cash flow...Good luck
I agree with that statement michael. What have you been doing in NJ to turn the cap rate around? Raising rents isnt always as easy as it seems and negotiating a lower price for a property may be a feasible option. Have you bought property in NJ? thats my main area of interest actually..Jersey city, Newark, Irvington, etc..Would appreciate your insight.
Quote:
On 2005-10-02 21:49, MichaelDeCanio wrote:
. I am also seeing in NJ that cap rates are somewhere between 4%-8%, which is very difficult to Positive cash flow...Good luck
Sham, The only way i can see changing it, is to wiggle through the sellers to try to get a lower price, with a combo of a larger down payment. There seem to be many positive cash flow buildings available in Newark, but not in the desirable area of Newark near Ferry St. A lot of these buildings have vacancies, and posess a little risk... There are also buildings available in Livingston as well, which seem to have decent numbers..If you would like to contact me, i may be able to assist you in your search, as i am from NJ.
Mike
I have to disagree that rents and purchase price are the only way to change cap rate.
Anthing that increases the income or decreases the expenses for a property will increase the cap rate. For example many buildings only have 1 boiler that heats all units and is a big monthly expense as owner-paid heat ($1000/month or more eating cash flow for example). By installing individual heating units that the tenants pay (cheap space heaters for example), the owner would greatly increase the cap rate for the property. I see a lot of properties for sale with only one heating unit in the building (because of energy prices) so there is opportunity for a good deal on something that you can improve.
I recently purchased a 6-unit at a decent CAP Rate, but I knew that it had a lot of room to improve. Like a business, many commercial properties are simply poorly managed. I try to find solid properties with poor management or operations when I am looking for a CAP Win.
1. Utilities. Gas and Electricity can significantly lower your Operating Income. Consider breaking out the utilities and passing the costs onto the tenants. Even if you have to lower the rent rates slightly, the money you save from utilities may help your NOI.
2. Vacancies. A quick and easy way. However, be careful with how the seller determines their NOI. Often, they base the price on 100% occupancy rather than a weighted average or the previous year. Negotiate the price down based on the past couple years or occupancy, if possible.
3. Storage and Laundry. The unused basement spaces can generate extra cash.
Sham - Finding good apartment buildings with decent cash flow in Jersey city is extremely tough. In most cases, the prices are so high that its is not worth it. You are looking at 6-7% CAP rate in Jersey City in most cases. You might find better CAP rates in Irvington, but then the neighborhood is tough. Same thing with Newark. In almost all the cases, in the better sections of these cities, CAP rates are low. Unless you want to find a rehab multifamily at a cheaper price, add value to it and then find tenants.
I would like to say that simply realizing that your future financial security should be a high priority, puts you lightyears ahead of millions of people in our country.
Woud be a good idea to join some local real estate investing clubs in your area, perhaps hook up with a mentor there.
I would like to say that simply realizing that your future financial security should be a high priority, puts you lightyears ahead of millions of people in our country.
Woud be a good idea to join some local real estate investing clubs in your area, perhaps hook up with a mentor there.
Best of luck!
_________________
Robyn Hudson, Investor,
Investment & Exchange Agent
[ Edited by hudson0116 on Date 04/02/2006 ]
I have joined a real estate club, I just recently moved from the area, so I need to find a new one. I know of a couple of potential deals in my area so I will check them out and keep posting.
if you can get needed equity position and numbers work i mean good dcr you should be able to get done pretty quickly but you will need someone with strong financials on deal also and a great mgt company since you have no exp
john richard
if you want to get into commercial realestate your cap rate better be at least 2% more than your interest only rate on your commercial loan. A 100% financed deal is possible to for ground up projects. Make the land owners your partners and the builders your partners for the construction loan and when you refinance pay them off. Because your appraisal should but 30% higher then your construction loan. usely landowners have equity in the land and your builder if willing should have strong liquid asset standing.
In my opinion, I would fine tune any offer that hinged on the information you gave here, in your post.
I would negotiate a price offer based on asking price minus 60% of the maintenance or upgrade costs. You shoulder 40%.
I would inquire about any escrows set up by the current owners for vacancy allowances, repair allowances and security deposits and rent advances. These are all yours, when you buy the property and I would not pledge these away. I would also demand the next months and subsequent rents be paid to escrow as well, and monitored by the Closing Agent.
My 20 percent pledge would be a promisory note, secured by some savings account, real estate equity on another property, a cert of deposit, or money market acct. or even a stock portfolio feature. I would not put hard cash on the line, up front.
I would contact an accountant to run the numbers for you, and then verify market trends using a second real estate agent/broker, to see if there is more rents which can be billed when tenant contracts come due.
I would ask about things like warrantees on roofing, flooring, screened enclosures, utility items like washers/dryers.
this should give you an idea of what you might want to do. But I personally would not go hard cash down. I would leverage off of that money, while still collecting some type of interest from it, instead of committing it to an escrow account, or in the hands of someone elses attorney; while you get that deal closed.
After deducting taxes and insurance it leaves you 85k. from this you need to at least deduct heating cost, loss of rent, garbage collection, repairs and maintenance($60-100@m/per unit depending upon condition) and if somebody else is going to manage it, cost of management. You also want to check the need for roof repairs, or boiler or HVAC unit repairs.
After deducting taxes and insurance it leaves you 85k. from this you need to at least deduct heating cost, loss of rent, garbage collection, repairs and maintenance($60-100@m/per unit depending upon condition) and if somebody else is going to manage it, cost of management. You also want to check the need for roof repairs, or boiler or HVAC unit repairs.
what are your costs off that 104, gross income? Must consider Vacancy, marketing, replacement costs etc.. Figure out your NOI. Then go from there. It is all in the real numbers not thte HYPE. If when it is said and done and you are getting it for 12-15% CAP rate you did well.
I suspect that what you are actually asking is for a marketing technique--
No techique works all the time-- it has to match with your product, target market and strategy for reaching that market.
A marketing strategy, of course, depends on your product and target market. Without some information about what the product or market is any answer to this question would be pretty meaningless.
Perhaps you would care to share what it is you are trying to sell?
You might try a hard money lender. www.rehabfunding.com has a 6 month no pay option if you qualify for it. Course, this will end up costing more than 32k unless the repair cost was somewhat inflated to begin with. Just a thought...
the bank held back the 32,000 and there should be a disbursement clause in your closing doccuments,have you checked? if not, then your other choise is to make a contract with the Contractor and have the bank sign it essuring him for the payment upon completion of the works. This leaves you out of any responsibility to him for the payment.
It appears that the escrow is part of the financing for rehabbing. However bank should not have problem paying for the completed work.
you may be able to get the bank to issue a letter showing money is available upon competion of work to the contractor. then have contractor negotiate with the bank about their definition of completion ( partial or full) In that case the contractor will be able to plan and finance the project accordingly, as it may not take more then a month for the completion of work.
thanks for ideas - will let you know what happens.
Mark,
I think "users" in the context of your post above refers to drug users???
Sham, i totally agree with Johna and CommercialKing in that the only 2 ways to change the cap rate is to either RAISE rents, or LOWER purchase price, in any way shape or form. Whether you purchase a buiding with lower than normal rents, and raise them, OR purchase a building that you can get the price down, I would check with a Realtor in the particular area that you are interested in to find out what cap rates were for recently sold multiples. I am also seeing in NJ that cap rates are somewhere between 4%-8%, which is very difficult to Positive cash flow...Good luck
I agree with that statement michael. What have you been doing in NJ to turn the cap rate around? Raising rents isnt always as easy as it seems and negotiating a lower price for a property may be a feasible option. Have you bought property in NJ? thats my main area of interest actually..Jersey city, Newark, Irvington, etc..Would appreciate your insight.
Quote:
On 2005-10-02 21:49, MichaelDeCanio wrote:
. I am also seeing in NJ that cap rates are somewhere between 4%-8%, which is very difficult to Positive cash flow...Good luck
[ Edited by Sham718 on Date 10/03/2005 ]
Sham, The only way i can see changing it, is to wiggle through the sellers to try to get a lower price, with a combo of a larger down payment. There seem to be many positive cash flow buildings available in Newark, but not in the desirable area of Newark near Ferry St. A lot of these buildings have vacancies, and posess a little risk... There are also buildings available in Livingston as well, which seem to have decent numbers..If you would like to contact me, i may be able to assist you in your search, as i am from NJ.
Mike
I have to disagree that rents and purchase price are the only way to change cap rate.
Anthing that increases the income or decreases the expenses for a property will increase the cap rate. For example many buildings only have 1 boiler that heats all units and is a big monthly expense as owner-paid heat ($1000/month or more eating cash flow for example). By installing individual heating units that the tenants pay (cheap space heaters for example), the owner would greatly increase the cap rate for the property. I see a lot of properties for sale with only one heating unit in the building (because of energy prices) so there is opportunity for a good deal on something that you can improve.
Ways to Improve NOI.
I recently purchased a 6-unit at a decent CAP Rate, but I knew that it had a lot of room to improve. Like a business, many commercial properties are simply poorly managed. I try to find solid properties with poor management or operations when I am looking for a CAP Win.
1. Utilities. Gas and Electricity can significantly lower your Operating Income. Consider breaking out the utilities and passing the costs onto the tenants. Even if you have to lower the rent rates slightly, the money you save from utilities may help your NOI.
2. Vacancies. A quick and easy way. However, be careful with how the seller determines their NOI. Often, they base the price on 100% occupancy rather than a weighted average or the previous year. Negotiate the price down based on the past couple years or occupancy, if possible.
3. Storage and Laundry. The unused basement spaces can generate extra cash.
Best of luck.
Sham - Finding good apartment buildings with decent cash flow in Jersey city is extremely tough. In most cases, the prices are so high that its is not worth it. You are looking at 6-7% CAP rate in Jersey City in most cases. You might find better CAP rates in Irvington, but then the neighborhood is tough. Same thing with Newark. In almost all the cases, in the better sections of these cities, CAP rates are low. Unless you want to find a rehab multifamily at a cheaper price, add value to it and then find tenants.
Eric,
I would like to say that simply realizing that your future financial security should be a high priority, puts you lightyears ahead of millions of people in our country.
Woud be a good idea to join some local real estate investing clubs in your area, perhaps hook up with a mentor there.
Best of luck!
[addsig]
Eric,
I would like to say that simply realizing that your future financial security should be a high priority, puts you lightyears ahead of millions of people in our country.
Woud be a good idea to join some local real estate investing clubs in your area, perhaps hook up with a mentor there.
Best of luck!
_________________
Robyn Hudson, Investor,
Investment & Exchange Agent
[ Edited by hudson0116 on Date 04/02/2006 ]
Thanks for your replies,
I have joined a real estate club, I just recently moved from the area, so I need to find a new one. I know of a couple of potential deals in my area so I will check them out and keep posting.
Thanks,
Eric
if you can get needed equity position and numbers work i mean good dcr you should be able to get done pretty quickly but you will need someone with strong financials on deal also and a great mgt company since you have no exp
john richard
if you want to get into commercial realestate your cap rate better be at least 2% more than your interest only rate on your commercial loan. A 100% financed deal is possible to for ground up projects. Make the land owners your partners and the builders your partners for the construction loan and when you refinance pay them off. Because your appraisal should but 30% higher then your construction loan. usely landowners have equity in the land and your builder if willing should have strong liquid asset standing.
In my opinion, I would fine tune any offer that hinged on the information you gave here, in your post.
I would negotiate a price offer based on asking price minus 60% of the maintenance or upgrade costs. You shoulder 40%.
I would inquire about any escrows set up by the current owners for vacancy allowances, repair allowances and security deposits and rent advances. These are all yours, when you buy the property and I would not pledge these away. I would also demand the next months and subsequent rents be paid to escrow as well, and monitored by the Closing Agent.
My 20 percent pledge would be a promisory note, secured by some savings account, real estate equity on another property, a cert of deposit, or money market acct. or even a stock portfolio feature. I would not put hard cash on the line, up front.
I would contact an accountant to run the numbers for you, and then verify market trends using a second real estate agent/broker, to see if there is more rents which can be billed when tenant contracts come due.
I would ask about things like warrantees on roofing, flooring, screened enclosures, utility items like washers/dryers.
this should give you an idea of what you might want to do. But I personally would not go hard cash down. I would leverage off of that money, while still collecting some type of interest from it, instead of committing it to an escrow account, or in the hands of someone elses attorney; while you get that deal closed.
very very interesting info
phew!
Have several suggestions but, please qualify...do you use Escrow Agents in your state?
Please advise.
After deducting taxes and insurance it leaves you 85k. from this you need to at least deduct heating cost, loss of rent, garbage collection, repairs and maintenance($60-100@m/per unit depending upon condition) and if somebody else is going to manage it, cost of management. You also want to check the need for roof repairs, or boiler or HVAC unit repairs.
After deducting taxes and insurance it leaves you 85k. from this you need to at least deduct heating cost, loss of rent, garbage collection, repairs and maintenance($60-100@m/per unit depending upon condition) and if somebody else is going to manage it, cost of management. You also want to check the need for roof repairs, or boiler or HVAC unit repairs.
all heating paid by tenants
what are your costs off that 104, gross income? Must consider Vacancy, marketing, replacement costs etc.. Figure out your NOI. Then go from there. It is all in the real numbers not thte HYPE. If when it is said and done and you are getting it for 12-15% CAP rate you did well.