Make sure you select a company who has the experience and ability of Investor Representation, a company that knows the parameters of which you want to achieve, whether it is a 1031 exchange or a first time Investment Buyer, and can produce the correct reports that will obtain the necessary information for property value.
Site Selection with an Exclusive Buyer Representative
1031 Tax-Deferred Property Exchanges
A properly structured 1031 exchange allows an Investor to sell a property, reinvest the proceeds in a like-kind property, and defer all capital gains. The timeline is crucial of the 45 day identification period after closing the sale property, and the 180 day exchange period, or close of the replacement property. Even though we can locate the replacement property for you in a timely manner, it is very important to involve a qualified 1031 Exchange Intermediary before the sale of the property, for the preparation of the necessary documents.
Acquisition of Investment Property/Building a Portfolio
First, we need to determine a budget. Secondly, is there a preference of retail, office, or industrial? Location? Single tenant or Multi? Somewhat of a rate of return can be determined during the initial research, but the most valuable financial information will not be uncovered until later.
Financial Analysis of the Property
Capitalization Rate
Cap Rate is the best indicator of the return of a property independent of the buyer and the financing, and the most common return figured for initial research of properties. This involves the Net Operating Income and the Purchase Price. The value of an investment property can be determined by the Net Operating Income divided by the Average Cap Rate for the area, or the Cap Rate for a property will be figured as NOI divided by the Asking Price. If the average Cap Rate in this area is 9%, we will only look for property 9% or higher. Most seasoned investors already know what Cap that they would like as a minimum.
Cash Flow
Cash Flow is figured by NOI minus Debt Service. The annual debt service is specific to the investor; therefore this all depends on down payment, interest rate, amortization, etc.
Determination of Internal Rate of Return (IRR)
Your Return on Investment is the amount of Cash Flow received by the amount of money the investment cost you. This is also considered Cash on Cash (COC). So the obvious, if the Cash Flow is high in regards to the investment of Cash FLOW, there is a higher Rate of Return or COC.
Location Comparison
We will show a comparison of the different locations with as much information as the brokers have provided.
Preliminary Determination of Value
This is not an appraisal, but a determination of what has sold in your area, how much, and how closely the comparable properties resemble the subject property.
Verbal Offers
If the offer is not full price “as-is”, which is not the norm, a verbal offer will be given to the Listing Broker, who in turn will communicate with the Seller(s). (Remember, your best interest is of most importance; therefore, nothing will be divulged that does not need to be.) This may be a little like ping pong, in some instances, and can somewhat be time consuming depending on the size of the selling party.
LOI Submission
Once a preliminary value has been determined and a verbal offer has been accepted, we will draw up a Letter of Intent (LOI) outlining the material items that need to be addressed in the Contract. This is not a binding agreement. This is a letter expressing your intent to purchase their building, and their attorney can now draw up the Contract.
Review Contract with Your Attorney
Once we’ve determined that most everything is within the contract that was communicated, the Contract needs to be reviewed by your attorney. If anything needs to be changed, the attorney can make those changes unless we’re talking negotiating due diligent items and/or dates. Then, I’m back looking out for your best interest.
Management of Due Diligence
Once the Contract is signed, and the Earnest Money and Contract delivered to the Title Company, we will work together as a group to make sure those inspections have been met and are satisfactory to you within each inspections’ time frame. We can coordinate each of the Inspections with gaining access into the building, if needed.
After Due Diligence has been met and Before Closing
After the Due Diligent dates have expired, you are obligated. But if, for any reason, you need access into the building, we will coordinate the availability with the Listing Broker, if allowed.
Closing at the Title Company
The Title Company will coordinate the dates upon which both parties will sign.
