Posted by StevenS(CPA) on July 31, 2007 at 09:08:34:
Well the first thing anyone will want to know is what is the value of the property compared to the sale price. That is the starting place of most deals.
The next few areas will depend on what your investment objectives are going to be (note: that your investment objectives may be determined by the property).
Most investors are going to want to know the following:
- Comparables â?? What are other similar properties selling for in the area
- Sellerâ??s motivation level, price point and terms â?? Is the seller highly motivated and willing to accept a discount or terms or is the seller just shopping the apartment to gage buyer interest in the property.
- CAP rate â?? The CAP rate is generally considered the annual return of a property over the purchase price. The higher the CAP, the better (in most cases). But different brokers use different CAP rates to value their property (i.e. one broker may be using gross income, while another will use net income â?? find out which your broker is using quickly and with every property).
- NOI â?? Net operating income â?? this is mostly a check to see is the apartment is doing about the same as others in the area are doing. Any number out of the ordinary should be investigated.
- Quality of rentals - Are the rentals long term, low turnover, and payments on time or are they most new tenants, scattered on time and past due rental payments, and high turnover?
- Vacancy rate â?? Is this above or below the market average?
- Property potential â?? What can you do to add value to the property? Clean up, update, reduce cost, vacancy, rezone, ect.
- Exit â?? This is very important to most investors â?? how are they going to get out of this property? How are they going to get their money back and their profit??? This should be your focus on any property you buy for yourself and if you bring in investors.
There are a many more things you will need to know about a property before buying, but in general these are the first questions I like to have answered.
Iâ??m sure others will have more to add but I hope this helps