Estate House QTA

1. Gross Rental Multiplier

Gross Rental Multiplier (GRM) is one of the commonly used methods of assessing if a property is worth pursuing when buying completed properties from the secondary market. Although one can estimate the values, it requires one to have access to current and detailed financial information about the selected property.

The Gross Rental Multiplier is calculated by dividing the sale price of the property by the annual gross income, i.e. the gross rental receivable. The result of this calculation will give you a result that will assist in determining if the property is indeed worth purchasing.
An example:

Price of Property: $1 Million
Annual Gross Rental ($5,000 per month x 12 months) = $60,000

Gross Rental Multiplier = Annual Gross Rental divided by Sale Price = $60,000
divided by $1 Million = 0.06 x 100 = 6%

Thus, the answer is 6 percent per annum. When compared with the current fixed deposit rate anything from 1.5 to 2 times indicates a good buy.

2. Cash Flow

Regardless of its location or design, a property has to generate a cash flow, as investment decisions are largely based on cash flows.

Rental returns of properties around the area are an important issue. Good occupancy rates (above 90 percent) escalating or declining rental in the area, and more demand than supply, are some of the considerations that determine if rental returns are attractive.

Cash flow is calculated by adding monthly cost of quit rent, assessment, taxes, insurance, repairs, maintenance, to the calculated mortgage payment. To get the monthly cost, divide the yearly amount by twelve.

Apart from looking at the Gross Rental Multiplier and Cash Flow, property out-goings affects the overall yield and it is important to understand what they are.

i) Quit Rent
The State Government collects an annual land tax from owners, payable to the state land or district office. This tax is paid by land owners in most countries and may have a different name in each country.

ii) Assessment
The Local Authority or Council provides public facilities and services such as roads, street lights, drains, markets and other utilities, which have a form of tax attached to them.

iii) Agent Fees for Securing a Tenant
Where monthly rent is above five figures for commercial properties, agent fees may be negotiated.

iv) Vacancies
A vacancy occurs when the property is unoccupied resulting in a loss of rental income. For practical calculation purposes, include one month’s vacancy per year when calculating your overall yield.

v) Service Charge
Retail outlets and office suits, and of late, new commercial shop offices charge a monthly fee for allocated parking spaces and/or security patrols.

vi) Maintenance and Repairs

Landlords of most commercial properties are required to maintain and repair the structure of the building, and attend to leakages from the roof or piping.

vii) Capital Appreciation

When considering property in a particular area, inquire into the capital appreciation record of properties similar to what you are looking at. 10 percent capital appreciation in one year, or 30 percent within three to five years is adequate. Property market trends in most countries follow a natural five to seven-year cycle in which the property prices double. Future market trends are expected to be shorter and sharper, thus carefully selected property will appreciate over time for basic reasons as it will cost more to build the same building due to rising construction material and labor cost, and inflation.

An idea that doesn’t always immediately spring to mind when selling your property is that instead of selling it for a lump-sum monetary settlement, why not sell it to your buyer by an agreed instalment plan? This instalment plan can be organised over a mutually agreed timeframe so that you have cash flow coming in each month and your buyer can pay within their budget.

The beauty of this is that if your buyer does fail to make their payments, the house remains in your name so you do not lose your asset.

By selling your house in this way, it is you rather than a bank or other financial lending institution that is providing the buyer the means to buy – they will not need to go anywhere for mortgage as it is theoretically you that has become the financier. The majority of the profit that you gain from doing this (it is called house wrapping), is interest and most of the risks of owning the property are passed on to the buyer.

Positive Net Cashflow

When your buyer is paying you more each month than you need to pay on your own loan repayments, you are seen to be in positive net cashflow – this is an ideal situation to be in as you don’t really need to think about how the mortgage on the property is made each month. It is a great idea to receive your instalment payments from the purchaser via direct debit.

Why Wrap?

There are many people who are desperate to own their own properties but for whatever reason can’t get a mortgage. This is often because they are self-employed. Banks don’t like to take the risk in offering a mortgage to self-employed as they do not consider that it is a safe enough bet that the buyer’s business will survive the term of the mortgage. However, often business owners are the most responsible when it comes to money, after all it’s their own livelihoods that are on the line if their business fails and what the banks also do not appear to consider that in today’s climate, no paid employment is bullet proof safe either.

There have been many concerns about the ethics involved in house property wrapping and this has mainly come about because of the minority of people who clearly are out to gain purely for themselves and not consider the welfare of the property buyer. There are always risks involved and that’s why it is of the utmost importance to go to an expert in property wrapping such as myself to ensure that you are getting the best deal.

When a house wrap is done with a win-win situation in mind, rarely are problems created. This technique can offer not only an excellent return for the financier (current house owner), it also provides a fantastic opportunity for the new buyer to finally own their own property when they have probably been turned down so many times before by other lending institutions.

It has to be said though that you should not rush in and try and make these deals yourself until you have had some expert guidance – each situation is different and you need to create the house wrap that caters for both you and the other party involved.

For this reason, I have come up with a unique house property wrapping guide and full one-on-one coaching program that will take you through all the steps needed to ensure that your first property wrap is a successful one. Ultimately this will save you thousands of dollars in the long run.

If you are not in the real estate business, you will find dozens of foreclosed property Web sites to search. Even forsalebyowner.com lists foreclosures now. Wow! Is the Internet the ultimate source of information, or what?

What! Foreclosed properties are truly the ultimate example of how people’s perceptions of the Internet lure them into a false sense of empowerment when searching for a home or investment property. There are several “realities” that make shopping for that ultimate “steal” without agency representation a pointless boondoggle. Here’s the reality check for foreclosures:

1. Foreclosed homes are all listed by real estate agents-all of them!
   1. Lenders do not FSBO. They realize that the marketing power of agency representation gives them the edge in selling their inventory of foreclosed properties.
   2. Agents love it when unrepresented buyers contact them about their foreclosure listings.
      1. They only have to answer questions that the buyer is informed enough to ask,
      2. and do not have to inform them about important considerations when buying a foreclosed property.
2. Foreclosed homes are not the only “bargains” available, and the others are listed by agents as well:
   1. Short sales are often better bargains, and a lot less stressful to buy.
      1. They are better bargains, because they are discounted as much as foreclosed properties, and the owner must provide a Seller’s Disclosure of Property Condition-and the property is almost always in better condition that a foreclosure.
      2. They are less stressful transactions, because new regulation requires that the lender respond to a buyer’s offer within 10 days in most instances.
   2. The market is so distressed, and has been distressed long enough that many sellers, especially those in the high-end and luxury home market, are letting their homes go for foreclosure level prices-and paying significant portions of buyer closing costs!
   3. The level to which home prices have fallen and buyer incentives have become fixtures in the negotiations has all but made the price of foreclosed homes uncompetitive.

All the old realities about buying a home still apply. Buyers benefit most by first finding a good agent to represent them. Unless a buyer searches only for FSBO properties, an agent will be involved in the transaction, and only agents who have entered into an agency representation agreement with a buyer will be representing the buyer. The answer to the question of how to find foreclosed home bargains is in three parts. Find a good buyer’s agent, let the agent do the heavy lifting, and look for the bargain, whether a foreclosure or not.

Foreclosure auction bidding strategy is not something you can read about once and never have to review or polish up on again. This article will serve as a preliminary guide to bidding strategies and techniques at a government seized or surplus auction. Owning a property is probably in the top three biggest decisions you will ever have to make in your life, so, you want to be sure of what you are doing before you jump into the deep end of the foreclosure pool.

The first thing you will need to know what exactly you are looking for and what a foreclosure auction really is. When a person defaults on their mortgage payments the lender gives the borrower notice of foreclosure. The current homeowners are allotted a certain amount of time to make up the balance owed, and if they don’t, this asset will be auctioned off in a live or online government auction. Now, anyone from the public has the opportunity to bid on this item-no matter where the value ends, that is what the property will be sold for. Different types of properties get auctioned off on a daily bases. You can bid on anything from a single-family home, to a FEMA trailer, to even an apartment complex. If you search hard enough, you will surely find an adequate home for you and your family-or a nice invest purchase.

Now that you know what a foreclosure auction is, you can figure out your best strategy to getting you that home you always dreamed of. Finding an outlet-be it online or live-auction info will be your ticket to a new home. Though newspapers and other periodicals are a great source for government auctions, online databases are more likely to have that specific property you’re looking for. These types of websites have search engines and keyword searches that make it unbelievably easy to find a property in your area.

Next, you are going to want to do some background research on the area of the property. Check the school district, parks, city infrastructure, and other various factors that will help you make a price assessment of the item. After you have done this, you will have a set limit/value of how much you are willing to spend. That number will be a constant figure that you never go over-you don’t want to catch “auction fever” and lose control of your finances. That is one mistake that can get you into a lot of trouble. If the price of a home starts going past your limit, you should simply move on and find a different property.

If you have never been to an auction, you should take the time to familiarize yourself with the auction’s rules and regulations, as well as looking at videos and pictures of live auctions. One of the best things you can do before you actually jump into bidding is checking out a live auction yourself-pretty much doing a test run. That way, you can see the type of people that attend these auctions and get the bidding pattern down so you don’t mess up when you attempt to bid on something. In that sense, you will also learn how to place a bid. Some auctions require a verbal bid, while others allow a hand or paddle rising.

Another thing to keep in the back of your head is having confidence. Don’t get pushed around and don’t be intimidated by other bidders. Everyone there is for the same reason-and anyone can win these auctions. These auctions are not geared towards dealers or real estate companies. The only thing you will need proper identification and enough money in the bank or on hand to pay for any assets you win.

With the knowledge you have learned in this article, I think you will be ready to take the next step. Whether this property is for a home for your new family or for investment purposes, you can and will get a great deal. The rest is up to you. Take these strategies and head down to an auction-that fantastic looking home in your desired area is not unmanageable to attain. These auctions are going on all day and all throughout the country. Take the time and do your research and your dream home shouldn’t be too far away.