I have my first L/O to get going this month and I need help with setting the sales price. I like the idea of pricing it out to the projected increased value in 1 year, but I am not sure if I can get away with that or not.
What strategy do you folks use to price L/O’s out? ???
Hey congrates on the deal. Keep in mind that the option price will affect the buyers ability to finance the deal. Most likey the buyer will apply for a mortgage and in doing so the lender will require a appraisal. If the value can’t be supported, you will be reducing your price, or asking the buyer to put more money in the deal, or killing it all together. Most investors reduce price. Set a fair option price. Look at todays fair market value and consider using a very conservative rate of appreciation. It should mirror the market. A good Realtor or appraiser can help.
“Look at todays fair market value and consider using a very conservative rate of appreciation.”
Depending on what market you’re in…being very conservative could cost somebody a fortune (if you’re the buyer–you want a conservative estimate, and talk about the ficticious ‘Housing Bubble.’ If you’re the seller…you’ll want anything but a ‘conservative’ estimate).
“A good Realtor or appraiser can help.”
Appraiser’s tend to be conservative by nature. That’s because they’re exposed to a great deal of liability, and if they’re accused of inflating property values…they could lose their license.
99 out of 100 agent’s eyes will glaze over when you ask them about past market appreciation within a given time frame. That’s typically an Appraiser’s area of expertise.
It takes a lot of data digesting & calculations to arrive @ a figure, and if an Agent doesn’t think you’re going to bring them business–chances are they won’t take the time to help you.
Consider paying an appraiser to calculate time adjustments within the neighborhood you’re L/O is located in. Make sure you ask if properties in the community are still appreciating, leveling off, or depreciating. Also, try to get a feel if the Appraiser you’re talking to is a ‘Bubble Head.’ Some Appraisers have been talking about an impending Bubble for years, and years, and years. They’ve been wrong, are wrong, and will probably continue to be wrong, but it’s important to understand that many lean toward the conservative side of this issue (these type could potentially cost or save you a bundle–depending on which side of the L/O you’re on).
It’s really not that complicated. I think I might know more than one Realtor whose eyes don’t glaze over. Probably more difficult coming up with a fair market rent. It is important to understand that the market sets the price as opposed to a Realtor or appraiser. I’d rather think good negotiating and not inflated appraisals put profit in my pocket. I’m in a state that averages less than 5% annual property appreciation. I’m also quite sure I haven’t lost a bundle due to a conservative option price. I make the “bundle” when I buy the property. Someone much smarter than me once told me its real estate investing not real estate speculation. With solid fundamentals, a lot of money can be made in up and down markets.
It’s all good.
p.s. About the bubble, I guess when people can’t afford to buy a more expensive house, they just won’t buy one. I still see plenty of buyers.
“I’m in a state that averages less than 5% annual property appreciation.”
That’s kind of a no brainer. I’m in a region averaging 12+% & it seems to be really picking up steam. Can you imagine Las Vegas last year @ 47%?!?! I thought for sure they were gonna slow & go sideways.
Our last purchase has earned us roughly $25k in equity since March 28th & we purchased for $175k! That’s much brisker appreciation than even I anticipated. Just goes to show after 15 yrs., you can still be surprised (pleasantly surprised).
I’ve been somewhat reluctant to venture to other parts of the country. Many of my friends have invested in Florida. Ft. Meyers area. It’s very tempting. New condo pre construction selling out 120 units in three days. Are you kidding me. Have you invested in other states?