Choosing to become a professional property developer and invest in property is no easy step. Is it one that requires a lot of thought, account and time to ensure you are making the right decision.
If you too are struggling to decide if property development is a right route for you, then the following FAQ can help put all your concerns to rest: 1 . What is property expense? There are many misconceptions about property investment and what it exactly entails. The most common route you will encounter - and see of - is renovation, where you buy a property with the purpose of doing it up and selling it. However , even though this niche was profitable during the property boom of 2007, this investment technique unfortunately is less successful during economic downturns. That is unless you have got the cash to turn the property around fast and quickly get it back available. The other route however - and the one we recommend to you - is buy-to-let. With buy-to-let, you can get property based on the areas tenancy demand and ability to produce positive cash flows, and generate month on 30 days incomes simply by leasing your property development to tenants. There is no need to sell... 2 . What makes property investment different to stocks, provides or shares? The fact that it will never go into zero values! Although stocks, bonds and shares can help you to experience 12-monthly returns of up to 25%, they are also prone to dipping down to -8% leaving YOU out of pocket. With property it is a considerably different story. Even in a recession, properties can still produce annual returns of up to 25% - if you shell out correctly - making it a much safer, more stable investment route. 3. Do I need capital to invest? Number Equip yourself with the right strategies, and it is possible to invest in property using little if any of your money and purchase properties without the need of putting your own home at risk. Investment strategies such as No Money Down or No Deposit Down are specifically designed to help you out invest with minimal costs involved. All you will have to worry about is your legal fees and stamp duties; yet quite possibly then it is possible to negotiate such property discounts that your property will essentially pay for itself. 4. Do I need encounter? Despite what the media would like you to believe, you don't have to have prior property investment experience to make a profit from property or home. The key to achieving long term successful investments is to: equip your property portfolio with the right investment strategies; negotiate the proper property price discounts, but more importantly ensure that you only invest in properties which can produce the positive cash flows together with tenancy demand you need. Attending a property development course can help to equip you with such investment strategies. Just make certain you thoroughly research these property development courses first, check their history/case studies and only sign up to a course that can offer at least 5 investment strategies. REMEMBER: Not all investment strategies will work in all financial climates, which is why having plenty of selection can come in handy. 5. How do banks lend money for investment property? Unlike applying for a mortgage where ones lending amount is based on how much you earn, buy to let investment is assessed very differently. Here, just about all lenders require is that your property is able to generate 125% of its mortgage repayments through buy to let. Significance choose wisely and it is possible to invest in bigger and better properties, than you normally would be able to if it was influenced by your salary. 6. What are the best properties to invest in? There is no fixed rule to this exactly, although residential properties complete primarily win in the investment stakes against commercial property and land. When you are researching potential property developments, the important thing points to take into consideration are the properties tenancy demand; the mortgages deals available and the positive cash the property can get. As long as there is the demand and the property can produce at least £300 in positive cash flows, then no matter whether it is a terraced, semi-detached or detached. This information aside, economic circumstances can make one property type more popular than the many other. During the recession for example , studies found that tenants preferred living in terraced properties compared to all other property types as they were better designed and more energy efficient. 7. What is positive cash flow? Positive cash essentially represents the earnings left over from a tenants rent after the properties mortgage repayments have been deducted. So , the larger the properties positive cash flow, better profitable the property is. 8. Is it possible to invest in all financial climates? Yes. If you are looking to enter specifically into the shop for to let investment market, then with the right investment strategies, brokers and negotiating skills, it is possible to invest can come property boom or economic crisis. Take the recent recession. During the last 2 years we have been confronted with property price discounts with at least 20%; base rates of only 0. 5% and a tenancy demand that has increased by 24% by itself during the last quarter of 2009. However , even with the property boom of 2007, property investment was still powerful utility as it encouraged rapid capital growth which in turn prompted rental increases and larger positive cash flows. The finance climate does not have to play a factor in your decision to invest; only help you to determine which of your investment strategies are going to be most effective. 9. Is it possible to invest abroad? Your property portfolio does not have to remain restricted within one city, region or nation. UK, USA, Europe or Australia... with the right strategies all properties can be transformed into credible property permits. The only thing you should be cautious about when investing abroad is familiarising yourself with their property laws and investment regulations. Just about every country is formatted using a different system, and will employ different methods for lending, organising repayments and structuring house leasing. 10. Do I have to give up my day job? No, far from it. The great thing about Parc Canberra is which you could easily research, invest and build your property portfolio in your spare time - for as little as 1 hour property per week : and continue working your day job. You can even employ a property manager to take care of your properties, and ensure that your rent; repair issues and tenant problems are quickly resolved without need for your assistance.
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As soon as looking at a commercial property of any type you need to spend time on the financial aspects of the property before you form a judgment about the price that you think that you can achieve. The financial aspects of the property can have a major impact on the price and or maybe the interest of purchasers. The financial aspects of a building or a property can impact the asset for many years and that is why must be analysed and identified.
We have detailed some of the major aspects of financial concern in a property purchase or profit scenario. Whilst these are not the only categories of activity and concern, they are the major ones in most circumstances. People recommend that you create a checklist from these items so that your property review and inspection process is suitably enhanced in addition to professional. The Asset Schedules: The property will contain many fixed and moveable assets. These will normally end up detailed on the asset register. A well maintained commercial property will have an up to date asset register for your assessment. Obtaining the asset register at the early stage of sale consideration is productive as it will tell you in detail genital herpes virus treatments are selling and later become part of the due diligence process. Bank and Personal Guarantees: An investment property comprises rents and other documents which support tenant occupancy. A normal leasing process would involve and create some form of guarantee to remain provided by the tenant to the landlord for the duration of the lease. It is important that this guarantee has both strength and product to reimburse the landlord in situations where the tenant defaults under the terms of the lease. At the time of property deal, these guarantee documents should have some form of ability to be transferred or re-issued to the incoming purchaser. This process is called a great assignment of the guarantees. You should consult with the landlord's solicitor to identify the types of guarantees involved and the ease when this can be achieved at time of sale. Capital Expenditure: Major items of plant and equipment which are replaced within a commercial property are usually regarded as capital expenditure and are separately itemised for the purposes of taxation and depreciation for a period of time. Taxation laws in your location will stipulate the depreciation terms as they apply to different types of capital expenditure. Like a computer that is purchased for the building control system will depreciate far quicker than the air handling unit that's purchased for the air conditioning plant. Well maintained property records will include a detailed capital expenditure register and the date when the capital item was purchased. Purchasers to the property will be interested in the depreciation that this register provides against the earnings in coming years. Taxation and GST: Every country and property location has its own unique taxation legislation and requirements relating to property and particularly investment property. In the sale process, it is important to understand that these matters are generally correctly handled and are up to date. It is sometimes necessary to view the net returns for the property for the last few years that were used on the taxation statements and lodgement process. You can also seek written confirmation from the owner of the property that all taxation matters are up to date. Income and Rent Analysis: The income for the property is a reflection of the leases along with occupancy licences therein. It is essential to understand that the rent has been collected in accordance with the leases or licences and that just about all rental matters are up to date. Part of this process will also involve the checking of the rent review profile and the expiration profile of all leases. A property with a volatile leases or leases that are soon to expire is likely to impact the amount or the buyer interest. When reviewing tenant occupancy against leases, you should review the original documents and cross benchmark this to the tenancy schedule and any discussions or information provided by the landlord. Independent Valuation: Many people will obtain a valuation regularly in support of their property financing package. It is not unusual for such valuations to occur annually. Important they are done by a qualified and registered valuer. If you view this documentation and take it into account in the rates process for the property, it is wise to consider the true independence of the valuation when it was done and its relevance to the present market. Some valuations for financing purposes may not be in parity with the existing market conditions. It pays to help you sometimes seek a true independent valuation at the time of sale or in preparation for sale. Land tax issues: Property stretch of land tax has a direct impact on the investment aspects of commercial real estate. In different locations, the recovery and payment from land tax is impacted uniquely by local legislation. In some circumstances the land tax can or may not be recovered from the tenants within the property. This will have immediate impact on the bottom line and net return from the asset; this then impacts the price. Consulting with the financial adviser for the owner of the property, or the taxation office environment, will achieve clarity in this taxation impact. Given that most agents and brokers are not taxation experts, you should require other professional taxation people as appropriate. Lease disputes: Rarely is there a property that does not have an existing lease claim or has been impacted by a previous lease dispute. For this reason it pays to question the matters of rent dispute and resolution. If in doubt, seek a copy of correspondence and any subsequent agreement relating to the appropriate parties. Unresolved lease disputes can jeopardise or slow the process of property sale. Mortgaged interests: The majority commercial real estate properties will have a mortgage of some type to a financier. When a mortgage exists, it is necessary to understand how it will be taken care of or discharged in the process of sale. The client should consult with the mortgagee to clarify these matters for you. In times of distressed properties, the sale of the property may need to realise a particular price before clear title can be achieved. Functional expenditure: The running of a commercial property will involve the operational expenditure attributed to running costs. Most of properties about particular types in the same location will have similar operational expenditure. If however a property has excessive operational expense which is above the averages in the area, then the property is likely to be difficult to sell. Most purchasers of properties understand that averages of property expenditure deemed to be realistic for each property. This also says that real estate agents and brokers ought to be well aware of the expenditure averages and analysis process that should apply in this situation. Operational expenditure is analysed on the basis of $'s per m2 or $'s per ft2 (depending on your location, monetary base, and country) Statutory charges: These are commonly referred to as rates and taxes. These will involve matters such as water rates, land tax, authorities rates, and any other form of charge which is raised by the statutory bodies. Importantly the charges so raised ought to be analysed for parity to similar properties in the same region. Part of the rating process involves a statutory value of the land on which the building and property is located. Whilst some property owners like to think that their valuation is usually high and justifiable (and therefore gives substance to the sale price of the property), it is this valuation that's the foundation for the charging and payment of statutory charges. The astute property investor will always question the following statutory valuation undertaken by rating bodies in an endeavour to restrict or lessen the amount of statutory rates and even charges paid each year. Rent reviews: A significant concern in the sale of a property is the size and stability connected with future rent reviews. It is the rent reviews which will underpin the cash flow and hence the attractiveness of the property so that you can purchasers. It is essential that the real estate broker or agent read all of the leases, before any assessment of price as well as method of sale is given. It is quite possible that the rent reviews projected and detailed in the leases may well either hinder or attract purchasers to the property. Rent arrears: Existing rent arrears should be identified with the user of a property. Any matters of associated legal pursuit should also be identified. It is possible that the property has had a brief history of rent arrears and instability. Look for these matters and question the cash flow stability. A history of finance performance from the property over the last few years is the best way to achieve this. Current building budget: This will involve a budget for income and expenditure as it applies to the building currently in the existing financial year. A good building budget are going to be written and supported by sound property strategy, projections, and controls. At the time of any potential property sale, one must always understand that the current financial performance is in line with the expected building budget. If there are any shortcomings or overflows, it is necessary to clarify the reasons for such. If you do not do this, the purchaser of the property will. The side agreements or possibly deeds: Property occupancy and usage can involve supplementary side agreements and deeds. This can be with tenants and / or neighbouring properties. Documents of this nature will have impact in the sale even though they may not be registered on the identify of the property that you are to sell. Documents of this nature will usually be supported by aspects of common law. If in a such arrangements exist, you must seek further detail and clarity as to how they will be handled at the time of sale. Among the list of common events here is the existence of rental incentives provided to tenants at the commencement of the lease. When a lot of these situations exist, the most common method of resolve is the discharging of the arrangement by the landlord prior to settlement. This can become a words of the contract. Sinking funds: It is not uncommon for sinking funds to exist on larger properties. The account is essentially established to set aside money to cover the cost of major items of repairs and maintenance. This would not normally comprise items of a capital nature. As an example, sinking funds may be used to cover the cost of painting the exterior of a large building say for example shopping centre every five years. If a sinking fund exists, it is important to understand how it will be handled at the time of sale. Assessment with the client's solicitor and accountant is essential to the process. Taxation depreciation schedules: The property will have a taxation devaluation schedule. When correctly maintained, these schedules have the ability to lessen the net property income in forthcoming years. This is a quick taxation benefit to the purchaser of the property who will assume the depreciation schedule as part of the sale and settlement. As being the broker or agent in the sale you should check the existence of such documentation and identify what positive aspects it brings to the sale process. A well constructed and detailed depreciation schedule will make the property sale better. Short term leases: Many properties have short term leases or casual occupancy active at any point in time. It is vital to learn the mechanism under which this occupancy occurs and how it will be terminated. You do not want a short-term occupancy to jeopardise the stability and processes of the sale. Un-documented lease occupancy: Some may call this an informal lease; however a casual lease can create concern and uncertainty in the process of sale. Some tenants may claim some sort of long-term occupancy from the existence of a previous casual lease arrangement with the landlord. Claims of this type must the natural way satisfy the requirements of law to be sustained or upheld by the courts; however you should be cautious in such circumstances since it can slow down or even jeopardise the sale process. Warranties and guarantees: When properties are constructed, the normal procedure of warranties and performance guarantees apply from the construction process. At the time of sale, you need to know if any such matters apply or perhaps exist. Copy of the documentation is essential. Further to this, in an existing building where recent fit out activity has generated newly constructed premises, it is likely that warranties and guarantees exist for the tenancy construction. These will transfer to your new owner of the property in most circumstances however the documentation to allow this to occur must be suitably constructed. This is a issue for the solicitor acting for the client. Utilities costs and supply: Every commercial property will be supported by the supply of mineral water, gas, electricity, and communication systems. The process of supply needs to be understood together with the cost of the process. Obtaining replications of recent accounts for those services will help you here. It is possible that some utilities will be supplied direct to the tenants and some others will be supplied direct to the building owner. Any differences in supply should be identified and announced. The costs of supply should be compared to the averages of other properties in the area. This brings to an end the is important relating to financial due diligence. These are the major issues that apply in the sale of commercial real estate; however you should try to look for any other items given that each property is unique in its performance and financial structure. Your review of these items will include the gathering of all original documentation as part of the checking process. Your notes taken of any comments and conclusions should be well maintained to protect you in the event of any disagreement or dispute. Given that commercial real estate involves large bucks flows and extensive legal documentation, the frequency of disputes is reasonably high. The only way to protect you here is inside your quality notes, a questioning mind, and good documentation. ##Need More Help? ## John Highman is a well known investment real estate speaker and coach that helps real estate agents and real estate brokers globally to improve their commercial real estate market discuss and close more sales and leasing deals. He himself is a successful real estate agent that has specialised in financial, industrial, and retail real estate of all types for over 30+ years. Whether you specialise in real estate gross sales, leasing, or investment, John has the tools that can help you and your office succeed in your market. |
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