Archive for the 'Property Developer Tools' Category
Ever dreamed of building your new home or investment property, yet you are so busy working hard at what you do best, you couldn’t possibly get the project off the ground.
The process of self-building can be a resource-stretching time, and you may not have the luxury of being on site when required during the day. These self-builders generally appoint a ‘Main Contractor’ or ‘Project Manager’ with responsibility for making the day-to-day decisions and keeping the project on-track. These can be self-build package companies, architects, project managers, quantity surveyors or builders, and can bring a wealth of experience.
• Advantages:
o Offers you the space to continue in full-time employment or with your day-to-day dedications;
o Less stress;
o Fewer known issues (your project manager can solve these);
o You can stick to the ‘bigger’ decisions;
o Improved knowledge on-site;
o Project managers can offer experienced support to you;
o If instructed to, your Project Manager will ensure your compliance with Building Regs, Planning, Building Control, Health & Safety and your legal requirements as a construction client.
• Disadvantages:
o Project managers can charge around 7-15% of build cost depending on the responsibility you give them, this increases the build cost and therefore reduces your profit.
o Not so involved in the day-to-day decisions, and will have to accept that your project manager will make decisions on your behalf.
o Project managers will not, generally, ‘cut corners’ on health and safety, which can increase costs.
You will need to decide whether or not your experience, ability, resources and lifestyle suit your property project.
Would you employ you for the required tasks?
Once you have identified what suits the project, we recommend engaging the appropriate ‘project partners’ (i.e. the key players in the project; e.g. timber frame company, architect, groundworkers, project managers etc) around you from as early as you can. This will give you a support team that offers lots of knowledge, saves you thousands, and helps you to get your project going!
Ever had trouble negotiating an option with a property owner?
Harry Charalambous, Buyers Agent and Property Expert, explains how to sweeten a Property Option Agreement to meet the vendor’s needs.
Most days, Harry negotiates and assists property investors in acquiring property using property options.
If you have found an investment or development site that works for you, yet you don’t know how to negotiate an option, call the team at Plan Assist on 02 9449 2333 and have Harry and the team help you secure favourable terms with ease.
Real estate investing success is not achieved by a “secret” method. Successful real estate investing requires hard work, good research, and a systematic and stringent analysis of each and every investment opportunity.
Yes, a proficient real estate professional can help you find, research, and even analyze the profitability of specific investment opportunities. But that does not mean that you should not be prepared. It is good for you to have some knowledge of the rates of return real estate investors commonly use during the analysis process before you make that all-important decision to purchase a rental property, regardless.
Since you are new to real estate investing, it seems like a good idea to discuss three of the most commonly used measures and returns. None of these would provide enough data to sway a decision by themselves, so you cannot make a decision solely on the results of these returns. But they are popular, you will hear them referred to, and it certainly will better prepare you to achieve your investment goal by becoming familiar with them.
1) Cash on Cash Return - Cash on cash return measures the return you can expect to receive in the first year of property ownership. In this case, the higher the cash-on-cash return is the greater the profitability of the investment.
Formula: Cash on Cash = Before Tax Cash Flow / Cash Equity (Initial Investment)
Test your understanding: Given the opportunity to invest $50,000 for a cash-on-cash return of 6.5% or an investment of $75,000 for a 10.2% return, which appears to be the better investment? Though it would require more cash outlay, the higher return, at least on the surface, seems to be the better investment. Why, because a first-year yield of 10.2% on your cash investment is better than a first-year yield of 6.5%.
2) Gross Rent Multiplier - Gross rent multiplier (GRM) measures the ratio between annual gross rental income and sale price. It is the least informative measure of an income-property primarily because it does not consider a property’s operating expenses, debt service or cash flow, and by itself is insufficient as a stand-alone number because it says nothing about a property’s profitability. Nonetheless, gross rent multiplier can be helpful for simple comparisons between rental properties. It is an easy calculation you can make in your head, and can be used when you simply want to get some idea how the price for one rental property compares to similar properties recently sold or currently for sale in the market. In this case, a higher GRM indicates a higher property value.
Formula: Gross Rent Multiplier = Purchase Price / Gross Rent
Test your understanding. What does it say about a rental property selling at a gross rent multiplier of 7.2 given that two similar duplexes in the area recently sold at gross rent multipliers of 8.5 and 9.0? Namely, that the duplex for sale appears to be offered at a better price than the comparable duplexes.
3) Capitalization Rate – Capitalization rate (or cap rate) is essentially an indicator of how much debt an income property can carry; the higher the cap rate, the more debt a property can support, and vice versa. The idea is straightforward. A property’s cap rate indicates the percentage rate of sale price attributable to net operating income (income less operating expenses). That is, it shows how much cash flow is generated to make the mortgage payment as a percent of sale price. In this case, a higher cap rate indicates that more money would be available to pay the loan, and explains why lenders use it in their appraisals.
Formula: Capitalization Rate = Net Operating Income / Purchase Price or Value
Test your understanding. Would you consider a small office building selling at a cap rate of 9.7% to be better priced than a building with a capitalization rate of 7.2%. Well, you should, because by all appearances it seems to generate a higher net operating income.
You get the idea. Real estate investing is about the numbers, not pure luck. You can get a real estate professional to help you with the research, and real estate investment software to do the math for you, but at the end of the day, you must prepare yourself to succeed at real estate investing.
Now go forth and multiply!
Everyday I listen to people searching for the success keys in real estate, and this one frequent question keeps coming up. Impatience can cause mistakes, however there are fasttrack ways to get you in the game sooner than later.
The quickest way to become successful in Real Estate Development?
The answer is pretty simple: find yourself a Real Estate Mentor.
There is no need to re-write the rule book! You can still be innovative and creative with your developments and take control of the project, however there are key skills and knowledge which are developed with years of experience before becoming successful as a real estate developer.
What I have found is that you can add years of experience and catapult you through to success simply by allowing a mentor to lead the way. This advice can be applied to any industry you may wish to pursue, however lets apply this to people starting in real estate development.
A real estate mentor can find the right builder, warn you of potential risks to a development site, find the right property development finance package, or make sure you have the right property development partnership agreements in place. These points alone can save you hundreds of thousands of dollars on a property project which the novice developer usually learns the hard way.
Example 1:
Mr & Mrs Reno – the builder was ripping them off, 12 month time delays, and home extensions incomplete. The couple were quoted as saying: “I am losing sleep over this!”
If only they had consulted a real estate mentor BEFORE they started the project, they would have saved over $200,000 in costs, and got a lot more sleep!
Example 2:
Mr Townhouse – Had a property with potential to build extra dwellings. He thought 1 extra dwelling was possible.
If only he had appointed a real estate mentor, he could have found out the property could allow an extra 5 dwellings! Thats about $300,000 in extra returns he nearly missed out on.
So make sure you get good advice, and more importantly seek out the professional guys in real estate, the ones who walk the walk and talk the talk. I personally have a real estate mentor whom I check in with all the time to make sure I am making the right moves in real estate development, and I must say, its one of the keys to my success.
Good luck, and happy mentor hunting.
Harry Charalambous, founder of Plan Assist, explains how simple a property option can be.
Harry frequently assists investors in acquiring property using property options and has become an expert with negotiating and securing favourable terms when purchasing.