Real estate investors must have basic valuation skills to make buy, sell, or hold decisions. Real estate investment companies have developed sophisticated valuation models to aid them in making investment decisions. However, by using spreadsheet tools an individual can produce an adequate valuation on most income-producing real estate. This would include residential real estate purchased as residential rental property.  Valuing real estate using discounted cash flow or capitalization methods is similar to valuing stocks or bonds. The only difference is that cash flows are derived from leasing space as opposed to selling products and services. Read on to find to out how any investor can create a valuation satisfactory enough to weed through prospective investment opportunities.
Individual Valuations:
Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed. However, an investor's valuation may differ from an appraisal for several reasons. The investor may have different opinions about the property's ability to attract tenants or the lease rates that tenants are willing to pay. As a prospective purchaser or seller, the investor may feel that the property has more or less risk than the appraiser. Appraisers are compelled to conduct separate assessments of value. They include the cost to replace the property, a comparison of recent and comparable transactions and an income approach. Some of these methods commonly lag the market, underestimating value during uptrends, and overvaluing assets in a downtrend. Finding opportunities in the real estate market involves finding properties that have been incorrectly valued by the market. This often means managing a property to a level that surpasses market expectations. A valuation should provide one's estimate of the true income-producing potential of a property.

Real Estate Valuation:
The income approach to evaluating real estate is similar to the process for valuing stocks, bonds, or any other income-generating investment. Most analysts use the discounted cash flow (DCF) method to determine an asset's net present value (NPV). NPV is the property value in today's dollars that will achieve the investor's risk adjusted return.The NPV is determined by discounting the periodic cash flow available to owners by the investor's required rate of return (RROR). Since the RROR is an investor's required rate of return for the risks involved, the value derived is a risk-adjusted value for that individual investor. By comparing this value to market prices, an investor is able to make a buy, hold, or sell decision.  Stock values are derived by discounting dividends, bond values by discounting interest coupon payments and properties are valued by discounting net cash flow or the cash available to owners after all expenses have been deducted from leasing income. Valuing a property involves estimating all the rental revenues and then deducting all expenses required to execute and maintain those leases.

The following are the types of expenses that have to be considered when preparing an income valuation: •    Leasing costs
•    Management cost
•    Capital costs
Leasing costs refer to the expenses necessary to attract tenants and to execute leases. Management costs refer to property level expenses, such as utilities, cleaning, taxes, etc. as well as any costs to manage the property. Income less operating expenses equals net operating income (NOI). NOI is the cash flow derived from normal operations of the property. Cash flow is then derived by subtracting capital costs from NOI. Capital costs are any periodic capital outlays to maintain the property. These include any capital for leasing commissions, tenant improvements, or capital reserves for future property upgrades.
Buy, Sell or Hold:  When purchasing a property, if an investor's assessed value is greater than the seller's offer or appraised value, then the property can be purchased with a high probability of receiving the RROR. Conversely, when selling a property, if the assessed value is less than a buyer's offer, the property should be sold. In addition, if the assessed value is in line with the market and the RROR offers an adequate return for the risk involved, the owner may decide to hold the investment until there is a disequilibrium between the valuation and market value. Value can be defined as the greatest amount that someone would be willing to pay for a property. When purchasing an asset, financing should not affect the ultimate value of the property because each buyer has different financing options available. However this is not the case for investors who already own properties that have been financed. Financing must be considered when deciding on an appropriate time to sell because financing structures, such as prepayment penalties, can rob the investor of his or her sale's proceeds. This is important in cases where investors have received favorable financing terms that are no longer available in the market. The existing investment with debt may provide better risk-adjusted returns than can be achieved when reinvesting the prospective sales proceeds. Adjust risk RROR to include the additional financial risk of mortgage debt.

To Conclude:
Whether buying or selling, it is possible to produce a valuation model accurate enough to assist in the decision-making process. The math involved in creating the model is relatively straightforward and within the grasp of most investors. After gaining some rudimentary knowledge about local market standards, lease structures and how income and expenses work in different property types, one should be able to forecast future cash flows.

As a realtor, you’re seen as a trusted advisor and often called upon to give advice on various aspects concerning the housing industry. What happens, though, when you get clients whose real estate interests – investors, for example -- are beyond your scope of knowledge?

You bone up. You ask fellow colleagues. You read everything you can get your hands on. And you learn. So in an effort to broaden your horizons and in honour of real estate investors everywhere, we put together this primer on mistakes to avoid when renting out properties.

As a real estate investor and landlord, Jarek Bucholc believes one of the biggest mistakes investors, especially green investors, make is miscalculating the expenses generated by their investment property. Landlords often overlook expenses such as property taxes, insurance, maintenance and the cost of having no rental income because their rental unit is vacant.

Bucholc advises investors to be prepared for such inevitabilities as a leaky roof or a tenant who skips town by thinking ahead. Landlords should plan or put aside two month’s rent for the yearly maintenance of their property, he says. Also, be aware that tenants tend to move on average about once a year so you could be faced with no income for a period of time.

He also recommends that landlords not subsidize their investments by using their own money or outside income to pay for the investment. The mortgage, maintenance costs and taxes should be covered by the rent.While doing that can be tough in markets with high and rising values, Bucholc says inexperienced investors will do so with the hope that their property rises in value. “Often, people want to rent out their properties out of desperation and then they get in trouble because they haven’t prepared for these expenses,” says Bucholc, a Calgary resident and founder of Canada Real Estate Investors Club (www.canadareic.com). A common mistake made by landlord is that they conduct sloppy or inappropriate screenings of potential tenants. Not only should you get a credit check and previous landlord check but to be extra safe think about getting a criminal check as well. To suss out whether a renter is serious or not, consider charging them a $20 fee for the credit check.“If they pay the $20 they are serious about renting,” Bucholc says. “If they don’t, they’re tire kickers.”

If you’re suspicious that the renter lied and has given you a friend’s phone number instead of a previous landlord’s try this tip, advises Bucholc. Call the number and ask if they have any properties or apartments for rent. That ought to trip up anyone who isn’t a legitimate landlord.

Landlords also need to be sticklers when it comes to drawing up contracts with their tenants. Will you charge late fees when a tenant is late paying their rent? Do you want your tenants to be responsible for taking their garbage to the curb side? Should you inform tenants of the need to obtain contents insurance? Again, Bucholc recommends investors prepare for any and all inevitabilities.“This is to avoid future conflicts, misunderstandings and possible court cases,” he says. “Try to cover every possible situation where the tenant can say I didn’t know about that or I didn’t think I had to do that.”

Hamilton realtor Robert Morrow, who specializes in buying and selling student housing (www.emailhomes.ca/studenthousing.php), says the lack of knowledge of the Landlord Tenant Act causes him great dismay.  He believes the Act is designed to favour the tenant but a good landlord--who follows the rules to the letter--will always be treated fairly both by the tenants and the legal system.“I see a lot of investors cutting corners to save money short term,” Morrow says. “In the long term, however, they usually lose money via unhappy and therefore transient tenants, or expensive repairs once ordered by the court.”

One big mistake landlords make is that they are tardy when responding to tenant concerns and building maintenance issues. Morrow recommends investors treat their property as if they were living in it and wanting to fully enjoy the space.“Does that make it harder to earn profit?” he asks. “Sometimes in the short term, yes. But long term, you won't have as much turnover and the quality of tenant will be superior. One conclusion to draw here is that short term rental investment is not a good idea. The investor should consider a 5 to 10 year investment minimal to be profitable.”

When it comes to student housing, aesthetics take a back seat to functionality. Meeting fire and safety codes is much more pressing than the colour of the living room. But often investors don’t recognize this and end up prettying up their investment property not for the 20-year-old student who will be renting there, but for themselves. That is a mistake, says Morrow.“As long as the stove top works, the fridge is large and relatively clean; the kitchen has utensils, dishes, and cookware supplied; the bathrooms are updated (to accommodate up to 8 people showering every day); and there is common space to put a TV for gaming--and of course, the internet is lightning fast-- then the student tenants are happy to pay top dollar rents.”

Oftentimes, parents purchase student homes for their own kids who are attending college or university and they upgrade the homes to their own living standards. This is also a mistake as professional investors see no value in the improvements and won’t pay extra for them. Unless they sell to another parent, chances are they will lose what they spent on renovations.

Other common errors made by real estate investors centre on inappropriate inspections. When it comes to assessing the damage to a rental unit it’s important to have clear evidence and nothing is better and more binding than photographs, says Bucholc. Make sure your tenant signs the inspection sheet, which in effect, means they’ve agreed to the damages found and any dents and scratches made subsequently will be on their tab.

Make sure your unit is rental ready when potential tenants are viewing it. Bucholc has actually seen a property that had dog poop on the floor. You want it to be clean and tidy otherwise how can you expect tenants to take pride in their home?

“If it’s dirty that builds bad karma,” he says, “and the tenant will not take care of the house and will not consider it as their own home.”When marketing your rental property, go outside of your immediate area to market it. Remember, says Bucholc, as a landlord, you’re in the relocation business.

Don’t overprice your rental unit as – surprise, surprise – no one will want it. And even if you do find a tenant, they won’t last. You’re driving them out with high-priced rents.Finally, says Bucholc, don’t rent to family or friends.“This is business,” he says. “If they have a problem and can’t pay the rent it’s hard to say no to family and friends.  Don’t mix business with pleasure.”

What advice do you offer your clients who want to invest in real estate? Do you have any pointers that we missed? Please share them.

Source: propertywire.ca

Networking is an important skill in any business if the goal is a profitable business. The same holds true for real estate investing, at least on behalf of those who are serious about pursuing real estate investing as a business rather than a part time hobby. Either way, in all honesty, the ability to network for potential business partners, investors, and join ventures along the way can be critical to providing the type of diversity your real estate portfolio needs in order to be solid in a market that is nothing short of volatile.

 With the current situation of  lending market, networking has become more essential than ever before for real estate investors. Networking can not only lead you to potential properties that might prove profitable but also to people who need your specific specialty or may be looking for a property you have access to. Even if you share your profits, as long as you are also sharing the workload, you can find a very favorable working environment when you join someone else in a venture such as wholesaling properties, offering lease options, or even working together on a quick flip situation (though caution and clearly defined parameters are best in any of these situations it is critical when flipping a property).

Whenever you have the opportunity to network with other real estate investors it is in your best interest to do so. Don't limit yourself to only networking with those who engage in the same sort of investing you are most comfortable with as diversity is important to all real estate portfolios and you never know when an ideal flip will come across your desk that you can pass along, while making a bit of a profit from the transaction of course (to a flipper) or a perfect buy and hold unit will catch the eye of someone who generally purchases properties with the intent of flipping. Contacts work both ways and you can all stand to profit from the eyes and ears of others, whether as a joint venture, equity sharing project, or simply acting as business partners on specific projects for quicker results and an extra set of hands and eyes on the job.

If you aren't a part of a real estate investors networking group in your area, take the time to find them and join. The contacts you will make are invaluable if you intend to make real estate investing your primary business now or hope to make it your primary source of income in the future. Join as many groups as possible today (locally and within a reasonable driving distance) and see what a difference they make in the volume and scope of your real estate investing business.

The general rule-of-thumb here is to keep it simple and short. This is where a complete marketing plan comes into play.

Almost 80% of homes are purchased by people who currently live or work in the area. In addition to the internet, these buyers check the real estate section of the local newspapers and they read flyers posted at the local supermarket. This is where a complete marketing plan comes into play.
The general rule-of-thumb here is to keep it simple and short. Stay with the main facts and features (number of bathroom and bedrooms, close to schools, etc.) and remember to keep descriptions short and concise. Using one marketing method to back-up another is effective and efficient use of your marketing budget. More bang for the Buck!
Research other listings for attention grabbing headlines like "Below Market Price" or "Close to Schools and Shops" to get that initial response. Then, follow the tips below and you'll be on your way to selling your property fast.
Your effective ad should have three primary sections;

1. An Attention grabbing headline.
2. Key features and highlights.
3. A closing statement that motivates a potential buyer to make the call.

1. Headline. Find something that's unique to your property and peaks the initial interest to read or look further. Headlines even have different categories, choose one that best describes the positive points of your property. Capitalize only the first letter for more effectiveness.
Use terms like (sorted by category);

Features

• Change Your Life!
• Close to Schools and Shopping
• Buy a lifestyle!
• Renovated
• No Steps!
• Room to Romp
• Close to Lake
• The Sound of Silence
• Tucked Away Retreat
• Privacy Plus More

Value

• BIG HOME, Little Budget
• Try to Beat It
• Save Dollars and Make Sense
• Save Your Money
• This Price Is Right

Other

Let's take a brief look at credit scores, credit reports, and how these items affect your home buying power, plus your long-term financial strength. Three companies provide this information to potential lenders, and others who deem this information necessary;  TransUnion, and Equifax. Also, it is a federal law that you be provided a copy of your credit report from these three companies once a year.

 First, your credit report is a compilation of your credit history related to things like credit cards, revolving charge accounts (gas card or Sears card), previous mortgages, student loans, car payments, etc. It contains detailed information on your payment history, whether or not you have any negative items affecting your credit, plus details of your personal information known by the credit reporting company. It is very import

ant you immediately dispute any negative reports in these credit reports if they are incorrect, or take whatever steps necessary to correct the negatives if they are correct.

Are you participating in our Apprenticeship Pilot program?  Here are the answers.

How effective is your marketing? Until you start this important element of your business, your business will not really be started…

The key fundamental element in the first level of your real estate investing business is creating systematic and consistent lead generation.  Have you focused on that yet?   If not, you do NOT have a business, you have a hobby or a dream.  Your commitment to this area of your investing career is critical to your success.  There are many different ways to create leads.

Here are about 100:

      Accountants and CA Firms: They have clients with financial problems where an investor can be of help.

      Advertising: Never stop. Use simple ads with a USP, Unique Selling Proposition: Quick Closing, All Cash etc., Buy Houses Ads, Newspapers, Flyers.

      Attorneys: Attorneys know when people need money, often to pay their fees!  Not just probate but divorce, family law and real estate attorneys.

      Auctions: Do your homework in advance. Auctions move very fast and a single mistake can be costly. Visit your local auction a few times to just observe. Know values and repair costs before bidding.

      Foreclosure: Very risky, not for the newbie

      Sheriff Sale: Same as Foreclosure

      Tax Sales

      Apparel with Logos: Hats, T-Shirts, Golf Shirts, Hand Bags

      Appraisers

      Bandit Signs: Check your local sign ordinances. Some places have no issue with them others do.

      We Buy Houses or other more creative 
      Stop Foreclosure

      Bird Dogs:These people can be very valuable to your business. It is important to know your local laws about compensating unlicensed people.

      “Blue Tarp” Houses: often blue tarps on roofs

      Boarded up windows: or visible disrepair

      Business Cards different types: one for seller, one for buyers, one for professionals (banker, attorney, CPA)

      Builders Models: Frequently builders will sell a model home at a discount.

      Building Inspectors

      Car & Truck Loans: Some folks would rather keep the wheels than a roof over their head. Buy here, pay here dealers can be a good lead source.

      Car Repos: If the car is going the house isn’t far behind.

      Carpet Cleaners: Many of their customers are preparing a house for sale.

      Charitable Groups: Frequently receive gifts of real estate, but they’d rather have the cash.

      City & County Inspectors: Code violations and red tags. If you develop a reputation of buying distressed properties and improving them, you become an asset to the community.

      Classified Ads:

      For Sale:  Look for Key Words – transferred, motivated, divorce, owner financing

      Want to Buy

      For Rent by Owner: Look for burned-out landlords

      Condemned Houses: Many counties will provide you a free list.

      Consumer Loan Companies: When their loans go bad they are frequently willing to deal rather than foreclose.

      Courts: Eviction Filings, Probate Court, Divorce Cases, Tax Liens, Code Violations

      Credit Repair Agencies & Counselors: Many times the only way someone can get their spending under control is to sell a house they can no longer afford.

      Direct Mail: Pre-Foreclosure Letters, Probate Letters, Out of Town Owners, Post Cards, Bankruptcies, Divorce, Delinquent Taxes, Military Owners

      Door Hangers: You can also use pre-printed post-it notes to leave messages at target properties. Be sure to advertise on both sides, you can even sell the back side and recover your advertising cost!

      Door Knocking: Distribute flyers and go door-to-door asking residents if they know of anyone planning to move because you’d like to buy a house in their neighborhood!

      Drive or walk Neighborhoods: Get to know them well and take notice of changes.

      Estate Sales – often the real estate will also be available and perhaps with owner financing

      Eviction Court: great place to find landlords

      Expired Listings: Connect with an investor friendly Realtor

      Family Members: talk about what you do and ask for referrals

      Farming Local Areas: Become the local neighborhood expert.

      Flyers: Cut your cost in half, print two to a page and distribute: Shopping Centers, Wal-Mart, Home Depot, Malls. Put on car windshields or pay someone to do it for you.

      Friends: “Do you know anyone who wants to sell?” Most people know 2 people who will be buying or selling a home this year.

      FSBO Signs: for sale by owner

      Foreclosure Lists - http://www.canadianforeclosurelists.com
      Funeral Homes: Can be a good lead source before information on a decedent becomes public.

      Garage Sales: Are they moving?

      Hair Salons: Lots of talking going on during hair cuts!

      Home Builders: Need to sell their buyers houses so they can close on the new place.

      Condo  Foreclosures:

      Internet: Rent Clicks, EBay, Craig’s List, Wholesale Sites, Lead Services, Kijiji.ca ,CanadaREIC.com Network

      Insurance Brokers: Policy changes from owner occupant to landlord or vacant house coverage.

      Investor Packages: Investor who’s ready to retire and cash out their portfolio. May be able to negotiate seller financing as well as a discount.

      Judgments: Check the public record or hire someone to do it for you.

      Large Employers: Let them know you buy properties because if they need to transfer an employee, they don’t get stuck carrying the house. This can be good for renting executive properties for short-term transferees, too.

      Lenders: Banks / Second Mortgages – Mortgage Brokers, Private Lenders, Hard Money Lenders

      Liened Properties: Mechanics Liens, Condo Liens, Tax Liens

      Lis Pendens: Notice of a law suits, usually a foreclosure.

      Lists: You can buy lists for anything you want to market to; pre-foreclosure, free and clear, neighborhoods, etc.

      Magnetic Car Signs and Wraps: Check with your auto policy carrier as to whether or not this will affect your coverage. A rider may be required.

      Market Bulletin Boards: Grocery stores, coffee shops, restaurants

      Military Transfers: Military bases provide an excellent transient market for those needing to sell and buy off base housing

      Mobile Homes: Get to know park managers. Banks don’t like mobile homes but they can become little cash cows. A special license is required if you’re going to get into the mobile home business.

      Moving Companies

      Neighborhood Newsletters

      Networking: Other Investors, Call We Buy Houses ads & signs, Churches, Public Speaking, Investment Associations, Work, Clubs

      Newspaper Carriers: Who see the vacant houses everyday?

      Nursing & Retirement Homes: Frequently residents need to sell a house.

      Pens: Buy cheap ones and leave them everywhere you go.

      Pet Odors: If your home has housed a number of pets we may be the buyer for you.

      Pizza Boxes: many sell advertising or sponsorship spots

      Postman

      Public Speaking: Rotary, Lyons and Kiwanis Clubs, Realtor meetings and other associations

      Quit Claim Deeds: Are a sign that something has changed with the property.

      Radio Ads or Show

      Real Estate Agents

      Referrals

      Relocations: Great for Subject-to or buying on lease option

      Rent Credit: Trade rent credit for a down payment

      Rental Agents & Property Managers: Let them know you want to buy and also find a local manager. You buy, they manage…win/win!!

      Retirees: A growing population with free and clear homes. Excellent prospects for seller financing.

      Section 8 Landlords: Each county maintains a list

      Social Media: A new way to get your message out: Facebook, Twitter, YouTube, Google Plus, CanadaREIC

      Structural Damage: Once you know what you’re doing, you can buy at a rock bottom pricing.

      Tax Deed Sale Properties: These do not come with title insurance so do your home work.

      Tax Lien Certificate Properties

      Termite & Pest Control Companies: Write a check and the termites die. Write another check and replace the damaged wood. May find great deals.

      Title Companies: Not all transactions close like they are supposed to. Let the title companies know you can help in a pinch, for the right price.

      Trading Up: Trade your newly renovated property at retail for a property down the block that you can buy wholesale. Try a sign that says “Will Take Your House In Trade”

      TV and Radio: Cable companies may have community service spots for free.

      Vacant Properties – look for tall grass and neglected houses

      Web Sites

      Wholesaler Lists: A good wholesaler can find you multiple properties.

      Withdrawn MLS Listings: Easy to get from a friendly real estate agent.

As you can see there is no shortage of ways to generate leads.

To start, pick out 10 ways for consistent lead generation for your real estate investing business and focus on those.  In the beginning of our investing career, Jim & I walked neighborhoods with flyers and put magnetic signs on our cars. Why? Inexpensive and effective! Not glorious marketing techniques but we got leads and our very first seller called from our magnetic car signs!

The number one common element of failures in a real estate investing business is not treating it like a business. And, the most important  step to establish in ANY new business is LEAD GENERATION!  Without customers, there is no business.

Whether you are looking for foreclosures, owner-finance, wholesale, free & clear, rentals, fixer uppers, spread investing, etc,  it all revolves around having leads. Get busy and NEVER EVER stop marketing for leads!

Anything you’ve tried that’s not on this list?

 Many thanks to Karen Rittenhouse.  Please read more by visiting http://www.karensperspective.com/