Our next podcast discussing smart real estate investment strategies!
Today Marcia and I explain the methods behind getting the most profit from the sale of your investment properties.
René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker
Smart Real Estate Investing – Part 9
Marcia Edwards: Well, commercial real estate’s fun because you’re talking about putting people’s long-term plans together and talking strategy, and I know you’re good at that. Tell me what is it that the seller should know about getting top dollar? What are buyer-investors, the points of interest, when they’ve got their eye on a property?
René Nelson: The first thing that most buyers look at is their upside opportunity, and you might be asking yourself, “What does that mean exactly?” What a buyer looks for is how did the rents of the… I really prefer apartments, I can sell any type of commercial real estate, but my niche is apartments. And when a buyer steps up, they’re typically looking at that multi-family property and saying, “Where are the rents in relation to market rents? Is there upside potential? Could I increase rents?”
So they look at two things. The current tenants that are in place, how long has it been since their rents have been increased. If they’re in a lease, you can only raise rents once a year, so every 12 months you can raise rents. Right now, the cap for Oregon is 9.2% for rent increases. So that’s the first thing that a buyer looks at. And then they also look at how are the current rents in relation to market rents? “Could I bump these rents up? If one of the tenants moves out and I put some improvements into it, could I increase the rent from 900 to 1,200?”
Marcia Edwards: So a lot of people say, I see in the realtor side, novices at commercial investment, they say something like, “This is under-rented.” And then they put the numbers out there. Is that gonna work?
René Nelson: Oh, that is my pet peeve. So I’m gonna take a deep breath and tell you the problem with that. I see, especially Portland apartment brokers and I have a lot of good friends in the Portland market but they’ll provide offering memorandum or a marketing package, and you have to really read it to decipher what they’re telling you, because at the top, it’ll say “Pro forma.” And you think, “Oh, this is what the property is really doing.”
It’s not. The pro forma is a what if. And the amount of maneuvering that a buyer has to go through when they take ownership of that property to get to that level of rents is painful, and you’re gonna have some tenants that are gonna get mad and walk away and leave, so you have to be really cautious when you’re looking at those numbers.
Marcia Edwards: I wanna encourage you to have René flank you when you look at those numbers, because there’s too much skin in the game to do this on, as I say, amateur night.
If you’re looking to part with your investment property, René can help you make the most from your property’s sale. Schedule a 15-minute discovery call to better understand your investments and the market today.
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