Sherry and Laird describe why they came to the Ultimate Partnering Event and how the event surpasses their expectations. They share what their biggest fear was when it comes to investing in multi-family real estate and how they overcame it. Sherry and Laird tell you why they have a favorite training from RE Mentor and what RE Mentor means to them. They offer advice for anyone who is on the fence about getting started investing in real estate. ____________________________________________
Webster’s Dictionary would define the word “nibble” as “a small bite”, but to the person buying something, a nibble is a bit different. To a buyer, a nibble is a conscious or unconscious effort to get the seller to take less, and is usually the last effort to get just a little bit more taken off of the asking price. – Real Estate Club
The Nibble is a negotiating tactic.
Once you have the deal signed and finalized, if anything surfaces that you weren’t aware of prior to the signing of the contracts, ask the seller for a credit at closing. This information often surfaces after the property inspections, when you receive your Due Diligence verification back.
The most common Nibble
is actually the repair allowance we just spoke of. If there are additional repairs that you were not aware of prior to negotiating the sale of the property, ask the seller for a credit.
Other common Nibbles:
Maybe the rents aren’t as high as the seller stated, or perhaps some of the expenses are higher than you were told. Since your offer was based on the information given to you by the seller, you have the right to go back and get a credit for the difference.
The reason it’s called a Nibble is that you’re asking for small items, one at a time, nibbling away at the deal. If the seller agrees to each, you may end up with quite a bit. You aren’t asking for anything unreasonable. You’re asking for an amount that may be an inconvenience, but not a deal-breaker.
Nibbles are done after the seller is tied to the deal.
The further along you are in the negotiating process before you request these credits, the more likely the seller will agree. The seller already has plans for his proceeds and just wants to close the deal.
Don’t get too greedy, though.
If you’ve got a good deal, take care in handling your Nibbles. Don’t lose the war because you wanted to win the battle.
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We’ll cover that in this video plus:
- Yes, cash flow is good, but appreciation is great.
- Investing in multiple cities.
- What moves markets.
- Why markets emerge.
- Rapid appreciation.
- Retaining equity.
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1. Local government funding
A hefty amount of dollars spent by the local government on local development is a sure sign of the revitalization and further development of an area which means that real estate is about to take off in terms of supply and demand.
2. A jump in commercial funding
The relocation of large businesses, the opening up of offices and an influx of new business in an area is also a clear indication that domestic real estate will take off as all those workers, office personnel and managers will need somewhere to live.
3. Expansion of local transportation
An upgrade of the local transport grid, local transport network and or building of new access routes is an indication of the revitalization of an area.
4. A rise in the local population
An influx of new visitors, a rise in the number of 'out of towners' and a jump in the people who normally live in an area is a sign that the particular market is about to become a real estate hot spot.
5. A rise in investment projects
Any jump in investment projects or any large-scale investment in an area, even if it has nothing to do with real estate is one of the signals that the area is about to become a hotbed of real estate activity and you had better get in there fast.
Want to learn more about real estate markets? Go here.
There are three ways to determine the value of an apartment building:
- Replacement Cost Approach
- Sales Comparison Approach
- Income Approach
Replacement Cost Approach
The Replacement Cost Approach determines value by calculating how much it would cost to replace an existing structure. This approach is very time consuming to complete as you must obtain pricing for all materials (from 2×4’s to outlet covers) used in the construction of a property and then calculate replacement cost. Because of this, it is very rarely used.
Sales Comparison Approach
For single-family houses and 2 – 6 unit apartment buildings, the most common approach to determining value is the Sales Comparison Approach. This approach compares similar properties that have sold within the last six months, within a certain geographical radius from the subject property (usually no more than two miles, the closer the better) to determine value.
If you’re buying a 3-family apartment and a similar one on the next block oversold for $220,000, then your property will be valued around that area.
The Income Approach
For six units and more, you would use the Income Approach to determine the value of the property. This means that you would determine how much income the property is generating and determine its value based on that number.
There are several formulas that investors use to determine value, though one is more prevalent than others; that is the Cap Rate.
You’ll hear people talk about the “Cap Rate.” It’s what most investors use when comparing one property to another.
The Capitalization Rate is the rate at which the Net Operating Income (the income that is left over after all the expenses are taken out) repays the purchase price on an annual basis. Sounds technical, doesn’t it? Don’t let it scare you.
Cap Rate = Net Operating Income/Value (selling price)
Every real estate investor who wants to make money works under the same imperatives:
- The need to minimize the risks he is taking in terms of his own exposure.
- A certain amount of pressure to find ways to increase his profits.
Because working in real estate is all about being creative with the one resource you cannot get back:
- your time
- the amount of effort you put into each real estate purchase you make has to be closely linked to your expectations of making a profit from it
- or setting up a parallel income stream.
This is where the strategic vision that guides you comes in. Either you decide early on that you are going to focus on single-family dwellings, for instance, or go for multi-family dwellings.
The distinction here is an important one, hence the need for a ‘strategic vision’ in your planning.
Without that the decisions you are making are purely opportunistic ones and, as a result, you end up with the market running you instead of you running the market.
This is not to say that you preclude the one from the other.
Quite the contrary, the real estate investment market thrives on opportunities and when you find one passing it up because you are blindly following a by-the-book strategy makes about as much sense as leaping off a cliff because it’s fashionable to do so.
What a strategic vision does, however, allows you to decide when and why you should deviate from your chosen goal and it also enables you to assess what you can expect to gain by deviating from your game plan. In my career, for example, I have bought and sold single-family dwellings because I needed to make fast money for a bigger investment in multi-family dwellings.
While my focus and the thrust of my personal strategy have always been on the latter I have always known when to deviate and get involved in the former so that I can create more opportunities for myself.
It is exactly this approach that enables a focused real estate investor to make gains in everything he does every single working day.
How to formulate a working strategic vision, how to choose what’s right for you and how to stick to it is something I cover extensively in courses I give and in the boot camp weekends I run.
The thing is that without that strategic vision to guide you, you are left almost rudderless being blown about by the market conditions and unable to do much to actually affect your own destiny and that, is simply no way to run anything much less a lucrative real estate investment career.