There are numerous alternative ways to find a\”value play\” deal and many of them are property precise; meaning that you will have to find the possibility, you aren\’t just looking for one type of value play. In this article, we are going to chat about the 3 typical kinds of value plays so you have got a good foundation of what you're looking for.
1. Net Operating Income Play: This is the most obvious, the best, and the most competitive. Ideally, you are promoting to owners thru mailers, calling, or ads on a constant basis. You handle the calls yourself and ask them questions about their property. You can ask them for earnings and expense report for the last 3 years and that will tell you most of what you want to understand. If they don't have that available, have your own template form ready to go and ask them to supply you with these details right there over the telephone.
Once you have the income and expenses, you can compare them to the market. A mean property with pro management runs around 50% expenses. If you know the revenue on a building for the year is $200,000, then you can take 50% of that away and come up with a net operating income of $100,000. If the market cap rate is 8%, you can divide that 100k NOI by .08 and come up with a valuation of $1,250,000. That's the property\’s current value to you. What you're looking for is some way (s) to increase that $100,000 net operating revenue after you buy the property. If you can raise the leases and lower the costs such that you can boost your NOI from 100k to 125k, you now have the ability to expect to sell your building for $1,562,500. You have to account for your costs and the time it needs to make that happen, but without too much effort you can see the power of the NOI value play.
2. Highest and Best Use Value Play: Here is where you see a chance to change the way that the property operates. You can see a bit of land that looks like it should be a good golf course. You may see a hotel that looks like it should be an apartment building. You may see and residence building that looks like it should be a hotel. You may see an office building that looks like it should be apartments. Anything that isn't serving its \’ total potential for the market that surrounds the property isn't now serving its \’ highest and best use. One way to find highest and best use is to take a look at the appraisal report that was most recently finished. The appraiser is mostly well informed about the zoning of the property and zoning of the property is given by the local executive because they have determined that the subject property is best fit for X kind of business. This tactic takes an avid eye and is usually best for someone who has experience in the commercial real-estate industry. The income potential is huge there is however also more risk in the event your idea was not as good as you thought or the local government does not approve your intention.
3. Expanding Market Value Play: This one takes a good quantity of work on the front end before you even buy the property but little work on the backend after you purchase the property. You're looking for pockets of real estate that are growing in worth more than the average for the area. This is mostly caused by a press release of a new company headquarters and therefore, many new staff. Now, these workers will require more housing which will increase the requirement for residences. They also spend their cash at local cafes, shopping, automobile, grocery stores, banks, and the rest that we want to survive. You can purchase into these markets before the new jobs come in and watch the value of your property increase without any farther effort of your own. Of course, you want to maintain your property.
Nick Graff, CCIM helps real estate investors find great bargains on apartment buildings for sale. You can see his newest article for tips on purchasing in your own market at his recent blog post: 3 Top Ways to Find Good Deal on Apartment Buildings For Sale NYC.