If you use a standard broker there’s not much benefit to calling very far ahead of making a move. Of course, I suggest employing a full service wealth development specialist (WDS). I suggest that the initial conversations start 1-2 years prior to disposition and 6 months ahead of acquisition. I provide these consultations without charge…so do many other client centric investment brokers. Perhaps you should stop reading this and call.
Dispositions
The primary reason for starting early is to prepare your Due Diligence Package formatting. A, well organized complete package will separate your property from others with similar revenues in similar condition. Buyers and Banks factor for risk. Key components of risk are items that are unclear or unknown. By starting your Due Diligence Disposition package early you can instruct your Professional Management company how you want expenses reported.
We want costs shown as Operational Expenses only if they are indeed directly related to operations. The same is true of revenues. Instruct your manager to keep all extraordinary and capital expenses accounted for separately. It’s simple: building a new parking lot is cap-ex; stripping the old parking lot is operations. The reason that’s important? Take the case of a 53 unit apartment that spent $68,000 switching out their single paned aluminum windows and sliders for Argon filled vinyl. The individual heat bills dropped by $15/month, the appearance was upgraded, and the units are less drafty…clearly improvements. But poor reporting of expenses would reduce the value when evaluated by Cap Rate by inflating the expenses by $68,000:
Right: Operational Revenues: $500,000 -Operational Expenses: –200,000 Net Operating Income: $300,000 Imputed value at 6.9 Cap: $4,347,826 Wrong: Net Operating Income $500,000 -Operational Expenses -268,000 Operational Revenues $232,000 Imputed value at 6.9 Cap: $3,362,319Imagine improvements to your property reducingits value! A good broker would likely have figured this out during due diligence once the property was under contract…but it would not have become obvious until then. Prospective buyers wouldn’t have stopped to give your (apparently) under-performing property a second look.
A free meeting saves a million bucks. Now that’s what I call a high yield investment!
Want to increase your yields? Contact Rick Bean or Robert Poe at 503.577.1034 or rick@rosecitycre.com