As a residential agent, you overcome the largest hurdle and are well on your way to closing your first income property deal once you make the decision to sell multifamily property: The desire to sell more than houses is foremost.
In this article, I’ll show you four things you must now do that will help you seize every opportunity, perhaps avoid missed opportunities, and maybe bypass months (perhaps years) of trial and error before you close and subsequently collect your first rental property sales commission. It’s not exhaustive (there are other factors, of course). Nonetheless, if heeded, they are guaranteed to get you started on the right foot.
1. Learn some basic terms and formulas. After numerous years of assisting residential real estate agents frantic for rental property advice, I strongly recommend that you understand just two real-estate-investing-related terms (and/or formulas) in the beginning. Comprehension of other terms and formulas can wait and follow later.
An APOD is a report that shows the income, expense, and cash flow of an investment property for the future first year of the property’s operation. It’s an assumption because it’s based upon current property data subject to change; but it does provide a good “snapshot” of property performance during the first year of ownership. APOD is an acronym for Annual Property Operating Data (in case you’re wondering).
Understanding how cap rate (or capitalization rate) is calculated is likewise paramount to working with rental income property. You will start hearing the term and seeing the return used almost the instant you start working with investment real estate. I’ll forego the textbook definition and cut to the chase: Here’s the calculation (memorize it):
Net Operating Income (NOI) divided by Sale Price = Cap Rate
2. Learn the typical cap rates for you local market. Conduct your own comparative market study.
Dig through your local MLS to determine what capitalization rates income-producing properties are listed and/or sold. This calculation is commonly included in rental property listings and if not, make the calculation yourself (you only need the property’s net operating income and sale price). If the listing doesn’t show the NOI then derive one by computing the gross income less about 45% for vacancy allowance and operating expenses. If gross income data isn’t provided, you can either call the listing agent or simply decide to move on to the next property.
Ask a real estate appraiser. Call around until you find someone who appraises income property and ask about typical cap rates for multifamily and commercial properties in your area. Appraisers are an excellent resource for local market conditions. While you’re at it, be sure to subscribe to their newsletter if they provide one: Sometimes they include surveys and other income property data you will find useful.
Ask a real estate professional. If you know an agent that specializes in multifamily and commercial properties, buy him or her a coffee and start a discussion. If they are truly active with multifamily property and you know them well enough, you should get lots of good information about your area’s rental property activity and capitalization rates.
3. Invest in real estate software. Yes, it sounds like a shameless plug for my real estate investment software, but not so (honest). Having sold income property for nearly twenty years, I can attest that quality cash flow presentations got me listings, sales, and real estate investor customers time and again. Truly, you would be wise to invest in real estate software (some software) that enables you to create real estate analysis and marketing presentations. Consider it a way to develop your real estate investing knowledge and at the same time as a tool to advance your income property business.
4. Let others know you work with rental property. Once you master steps 1-3, call your residential customers and alert your colleagues. You might be surprised how quickly you benefit having them know about your interest and commitment to investment real estate. It regularly prompts existing customers to discuss real estate investing opportunities more openly and colleagues to give you multifamily referrals. It’s not magic, but the steps above will put you ahead of the pack in most offices and therefore the traction to move on the fast track toward your first income property deal.
Here’s to your success.