How to Market Rental Investment Property Like You Want to Sell It
Browse the listing inventory of any real estate office and you should expect to see some rental investment properties listed for sale by a residential real estate agent. Mostly duplexes or triplexes, but occasionally residential real estate agents are also selling rental property.
Having been a real estate professional myself for the past thirty years, I applaud any colleague with enough grit to sell real estate, let alone income-producing property.
But that's where my admiration ends, and my complaint begins.
You might call it professional pride, even intolerance. Yet it irks me when real estate agents present a rental income property for sale, and then do not include basic elements about the property that others (such as myself) require to sell that property.
In the MLS listing, for instance, residential agents typically do not include essential income and expense data about the property. This is frustrating because it necessitates a call to that agent, which easily can be avoided if the agent would merely take a few additional minutes to fill in some of the blanks before promoting the listing.
In this article I'm going to pass on two tips that you can use as a checklist to ensure that your rental property listings are given a serious "second look" by real estate investors and colleagues.
1. Complete the Data
Real estate investing is all about the numbers. Investment decisions are made on the basis of the cash flows, rates of return, and profitability generated by a rental property.
Therefore, it's crucial that your investment property is presented with the necessary data for colleagues and investors to gauge the investment opportunity and make a determination. Your failure to do this correctly may lead others to neglect your listing, and that could cost you a sale you may have made otherwise (not good).
Here is a list of the essential property data that you always should include with your listing. Yes, some are self-explanatory and generally understood, but too often residential agents neglect primary portions of this data.
- Number of units.
- Unit mix. Are the units studios, two bedroom one bath, three bedroom two bath, and so on? How many units are there of each configuration?
- Rent per unit. Show the "current" rent for each unit. Don't show the rents that you or the seller think can be collected. You might add a comment on what you consider to be an "upside rent potential", but present the actual rents to investors and colleagues.
- Gross scheduled income. This is the total annual rental income collected by the rental investment property. Calculate this as if all the units are 100% occupied. Use the current rents for the occupied units and realistic (not pie-in-the-sky) market rents for the empty units.
- Operating expenses. These are costs required to keep the rental property running. Such as property tax, liability insurance, utilities, trash collection, maintenance and repairs, and so on. Depending on the number of units, the annual amount of operating expenses usually varies between 25-50% of the gross operating income. With duplexes, for instance, tenants usually pay for trash collection and utilities so the ratio tends to be lower. Larger complexes, on the hand, are commonly paid by the landlord so the ratio tends to be higher.
- Capitalization rate. This is a very popular return used by most analysts to compare and establish rental property values. So you should always calculate and display a cap rate in your listing. To do so, just divide your investment property's net operating income by your asking price.
2. Create a Marketing Package
A marketing package (sometimes referred to as an "executive summary") is mostly a concise overview of the rental income property's financial data.
Here's the benefit.
Whereas, the MLS is meant to broadcast the listing and peak interest, the marketing package fills in the blanks for your investors and colleagues with the property's cash flows and rates of return.
So it's a handy way for you to publicize your listing at investment clubs and office meetings, post on your website, and send off to those making inquiring about your listing.
There's no hard-fast rule to creating a marketing package, but bear in mind that you're objective is to present as much income and expense data to someone that may have an interest in your investment rental as concisely as possible.
General elements to consider beyond the obvious would be a property description and features, current loan information, proposed loan information and annual mortgage payment, rates of return such as capitalization rate and cash on cash return, calculations for price per unit, price per square foot, expense ratio, break-even ratio, debt coverage ratio, and a property picture.
Remember, your goal is to sell your rental investment property listing.
So it will benefit you to appease investment property specialists. If you make professional listing presentations you are more apt to sell your rental property, plus to show your real estate investor how proactive you are about servicing rental investment properties.