Real Estate Talk:
Income property / 2
The ins and outs of the process behind the marketing of income property
By Joseph Marovitch
Marketing a duplex, triplex, or any income property of five apartments (units) or less is like marketing a house or condominium. The property price is based on location, condition of the property, comparable properties that sold in the past twelve months and comparable property currently on the market. In addition to the pricing, one should take into consideration the rent the landlord receives. If the property is fully rented at fair market value, then the sale price can be higher. If the property is vacant, then the sale price may be lower. Once the sale price is established, the property is put to market via ads in local papers, the Centris system, websites, newsletters, flyers and open house visits. Because there are only two or three tenants, it is easier to arrange individual visits and open houses for buyers to view the property.
In the case of multi-residential income property (six units or more) the pricing is different in that the cap rate we discussed in the previous article is a priority factor. The cap rate, along with the location and condition of the property determine the price. Once the sale price is established, the property is then advertised in newspapers, via flyers, emails, newsletters and sometimes, the Centris system used by real estate brokers.
Marketing a duplex, triplex, or any income property of five apartments (units) or less is like marketing a house or condominium.
There are several steps the buyer must go through to determine if the property is a good investment. These steps require that the vender provide information such as leases, invoices, bank information and more. The vender must also arrange for the buyer to visit the units, basement, boiler room, roof and more. In summary, the vender must perform work for the potential buyer and disturb several tenants to allow visits.
For this reason, in the marketing process, it is stated that the vender must accept the promise to purchase before the potential buyer can even visit the property. Venders want to know that the price offer is within range of the asking price before going to the effort of providing information and disturbing tenants. Potential buyers are protected with the four conditions that must be placed in the offer including:
1) First visit
3) Review of leases, invoices and other expenses
These four conditions will be discussed in future articles.
‘… the vender must accept the promise to purchase before the potential buyer can even visit the property.’
When a vender places a multi residential income property on the market for the first time and indicates the property to be in a good location with a Cap Rate of six or higher, and a clause in the listing, stating the promise to purchase must be accepted before a first visit, it is not unusual for the vender to receive many offers at the same time. I have seen as many as eight or nine offers received within 24 hours of the property being placed on the market. The vender can only accept one offer at a time, therefore the vender will review all offers to determine which offer has the best price and conditions and then prioritize the offers in a list of best to worst and then accept the best to start the process.
If the information regarding the property is accurate, the property is in good condition and the cap rate indicates a good or very good profit margin, the property will sell quickly.
If the first buyer, with an accepted offer, determines the information is not accurate, they will cancel their offer, as will the second and third buyer. After the first wave of buyers and buyer’s brokers realize the property is not what was listed, the word spreads and the property will stagnate without offers. When a multi-residential income property is on the market for a long period of time, it is because the information is inaccurate, and the cap rate indicates little profit or a loss. This is the time for the asking price to be reviewed and the information updated.
‘After the first wave of buyers and buyer’s brokers realize the property is not what was listed, the word spreads and the property will stagnate without offers.’
Next issue we will discuss the conditions that must be placed in a promise to purchase for income properties. Should you have any real estate questions, feel free to contact me anytime.
Have a great week.
State of the market
The real estate market in Montreal is still strong with rising prices. There are plenty of buyers but not plenty of inventory. It is a seller’s market, especially this time of year when property looks best during summer.
According to the Greater Montreal Real Estate Board, Montreal real estate sales in 2018 have increased 7% in the first quarter of the year compared with 2017. This is also the 15th consecutive quarterly increase. This past quarter is also considered the best first quarter sales results in the past seven years. At the same time, active listings have decreased by 16% compared to this time last year.
Read also: Real Estate Talk: Income Property / 1
Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible to, Joseph applies this to his present real estate broker career.
Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or firstname.lastname@example.org