Anyone who has been engaging in real estate investing for any amount of time has surely tried to sell an investment property at one time or another.
It’s called marketing. Over my thirty-year real estate career, I certainly did my share. And though my attempts didn’t always produce a successful outcome, the experience taught me a few things about marketing rental income property I would like to pass along.
Most are common sense, but mentioned as a reminder because there are realtors and sellers out there who need to hear it. The remaining tips are more subjective, but included to help you consider what might be a more effective marketing approach than you’re using.
Foremost, never make your marketing packages too vague. When you omit important financial data, it makes it very difficult for a buyer to adequately determine whether or not it presents a good investment opportunity. And this will typically lead to a further exchange of data with a buyer or agent that, at the very least, will be time-consuming, and at the worst, could cause a buyer to lose interest in the deal altogether.
Secondly, resist the temptation to skew the property’s financial data to appear overly optimistic. Perhaps rents can get raised, for instance, and you want to reveal that. But if you over-inflate what you deem could be future rents, you risk losing your credibility with the buyer, or may end up wasting your time in a deal that never has a chance anyway, once it’s subjected to the buyer’s due diligence. Keep your estimated assumptions realistic.
Thirdly, and this is a bit more subjective, don’t present marketing packages that contain everything but the proverbial kitchen sink-at least not in your initial presentation. In my opinion, distributing more than a three-page property report at your local investment club meeting or in response to a telephone inquiry, is overkill. Remember, you’re just trying to generate a response from credible investors with a valid interest; a more comprehensive set of reports can always get presented during subsequent exchanges.
Okay, now let me show you the essentials that worked for me. For simplicity, I’ve organized them by category: the numbers, and the reports.
Aside from sale price (which is a given), you’ll want to provide an itemized break down for the property’s annual cash flow, and computations for at least two rates of return.
- Cash Flow
Cash flow is crucial because it’s essentially what the real estate investor is purchasing in the rental property. So compute it for at least the first year of ownership by focusing on the following three financial elements:
- Gross Rental Income
- Operating Expenses
- Debt Service
Rates of Return
The rates of return (at least the two listed below) are important for the investor to determine whether or not his or her yields get met as well as providing a good way to compare the property’s financial performance and value to other similar-type rental properties in the market area.
- Cap Rate
Here are two reports I commonly used for initial inquiries. Both clearly show the rental property’s cash flow, and each include the cap rate and cash-on-cash rates of return. So they are informative, easy to read and understand, and straight to the point. Consider them as examples.
- Marketing flyer
This announces the listing to the community-at-large (i.e., investment meetings, call-ins, and inquiries from colleagues). (Sample available on my site).
This enables you to show your own investor-customers a likely scenario during the first year of ownership. (Sample available on my site).
In a Nutshell
An effective way to market rental income property is to consider the process in two stages: the initial presentation, and the subsequent follow-up. Keep the initial presentation concise; even one report with enough data to reveal the property’s description, estimated cash flow, and investor’s rate of return should be adequate to garner interest from credible buyers when they exist. And reserve all the other reports (e.g., acquisition funds, proforma income statement, rent roll) to the subsequent follow-up exchanges.