Using Letters of Intent With Real Estate Agents

Some real estate agents and real estate brokers prefer to write up a contract for each offer, while others use a letter of intent to express interest in a property and to work out the details before writing up a full contract to purchase real estate. Many bank owned properties (also known as REO properties) are explicitly telling agents not to submit letters of intent on their listings, but with private sellers, a letter of intent can be a good way to introduce your creative offer to a seller without a huge amount of time invested by your real estate agent.

If you are dealing directly with sellers to buy properties, rarely will you need to use a letter of intent. Instead, you’ll be meeting with them in person to sit down and discuss options for buying their property.

However, if you are working through a real estate agent (or two real estate agents if you’re not dealing with the listing agent directly), letters of intent can help you succinctly express your offer in the best light, especially when you don’t know if the agent who will be presenting your creative offer will understand the full benefits of it.

For example, I usually buy houses directly from sellers, but last week I started to make some creative owner financing offers for some houses through real estate agents. Once I was able to talk to the agents representing me, they immediately saw the benefits of my offer to some sellers. Unfortunately, the agents I talked to would be presenting my offer to another agent that represented the seller. So, I am relying on my agent to express the benefits of my offer to the seller’s agent, who in turn will present the benefits of my offer to the seller. With a concise letter of intent, I am hoping to give my offers a better chance of getting accepted by the seller despite all the moving parts and unknowns.

So, if you are working with a real estate agent, talk to them about whether using a letter of intent would be better with the offers you are making or if they want to continue to write up full contracts for each offer.

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Popular Real Estate Listings in Gurgaon

Being one of the emerging cities of the NCR region, Gurgaon has in deed undergone rapid phase of development post independence. Industries and offices of corporate biggies thrive here. Due to the initiation taken up by DLF, a leading realty developer, Gurgaon is now the destination of uncountable buildings and complexes that are being developed by world class realtors. The real estate mutual funds and the FDI have further boosted the realty development in Gurgaon. Let us take a note of upcoming real estate listings in Gurgaon.

Recently the DLF has launched two new projects, Express Green and Express Tower in the mid segment premium projects. Apart from these two projects, the realtor has brought in two other luxurious apartments, the DLF Park Place apartments and The Blaire. The express towers are located in DLF NewGurgaon and would offer 3 and 4 bedroom apartments. The prices of the units are kept very competitive. The Express Greens serve with independent houses as well as apartments. The prices are kept quite affordable and hence, ideal for middle class families.
The Vatika Group is regarded as another major player in the Gurgaon residential property market. The group has recently launched ‘Vatika Lifestyle Homes’ in sector 84. The project also aims to offer units that would be affordable for the middle class section.
The Ramprastha Builders has introduced its latest project ‘Edge towers’. The super area of the units is 1675 sq and offers a competitive pricing of the project turning it to be highly feasible for the purchasers. The project building is built in sector 37 D.
The Unitech is one of the largest realty giants of the region. The Woodstock floors in the Nirvana Country in sector 50. The residential units consists of 2 bedroom apartments with 2 toilets.
The Uppal Group has brought to the purchasers useful projects like Canary Residency and Uppal Group Housing in sector 78 and 91 respectively.

Apart from the above mention real estate listings in Gurgaon, there are other realty giants as well. With the growing competition to conquer the Gurgaon real estate market, the developers like EMAAR group, India Bulls, BPTP are coming up with breakthrough projects of their own.

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Top 21 Real Estate Investing Terms and Formulas

Understanding the real estate investing terms and formulas is extremely helpful (if not crucial) for brokers, agents and investors who want to service or acquire real estate investment properties.

This is not always the case, though. During my thirty-year experience as an investment real estate specialist I often encountered far too many that had no idea, and it showed – both in their performance and success rate.

As a result, I felt it needful to list what I deem are the top 20 real estate investing terms and formulas worth understanding categorized as either primary or secondary. The primary terms and formulas are the very least you should know, and the secondary terms takes it a step further for those of you who are seriously planning to become more actively engaged with real estate investing.

Primary

1. Gross Scheduled Income (GSI)

The annual rental income a property would generate if 100% of all space were rented and all rents collected. GSI does not regard vacancy or credit losses, and instead, would include a reasonable market rent for those units that might be vacant at the time of a real estate analysis.

Annual Current Rental Income

+ Annual Market Rental Income for Vacant Units

= Gross Scheduled Income

2. Gross Operating Income (GOI)

This is gross scheduled income less vacancy and credit loss, plus income derived from other sources such as coin-operated laundry facilities. Consider GOI as the amount of rental income the real estate investor actually collects to service the rental property.

Gross Scheduled Income

– Vacancy and Credit Loss

+ Other Income

= Gross Operating Income

3. Operating Expenses

These include those costs associated with keeping a property operational and in service such as property taxes, insurance, utilities, and routine maintenance; but should not be mistaken to also include payments made for mortgages, capital expenditures or income taxes.

4. Net Operating Income (NOI)

This is a property’s income after being reduced by vacancy and credit loss and all operating expenses. NOI is one of the most important calculations to any real estate investment because it represents the income stream that subsequently determines the property’s market value – that is, the price a real estate investor is willing to pay for that income stream.

Gross Operating Income

– Operating Expenses

= Net Operating Income

5. Cash Flow Before Tax (CFBT)

This is the number of dollars a property generates in a given year after all cash outflows are subtracted from cash inflows but in turn still subject to the real estate investor’s income tax liability.

Net Operating Income

– Debt Service

– Capital Expenditures

= Cash Flow Before Tax

6. Gross Rent Multiplier (GRM)

A simple method used by analysts to determine a rental income property’s market value based upon its gross scheduled income. You would first calculate the GRM using the market value at which other properties sold and then apply that GRM to determine the market value for your own property.

Market Value

÷ Gross Scheduled Income

= Gross Rent Multiplier

Then,

Gross Scheduled Income

x Gross Rent Multiplier

= Market Value

7. Cap Rate

This popular return expresses the ratio between a rental property’s value and its net operating income. The cap rate formula commonly serves two useful real estate investing purposes: To calculate a property’s cap rate, or by transposing the formula, to calculate a property’s reasonable estimate of value.

Net Operating Income

÷ Value

= Cap Rate

Or,

Net Operating Income

÷ Cap Rate

= Value

8. Cash on Cash Return (CoC)

The ratio between a property’s cash flow in a given year and the amount of initial capital investment required to make the acquisition (e.g., mortgage down payment and closing costs). Most investors usually look at cash-on-cash as it relates to cash flow before taxes during the first year of ownership.

Cash Flow

÷ Initial Capital Investment

= Cash on Cash Return

9. Operating Expense Ratio

This expresses the ratio between an investment real estate’s total operating expenses dollar amount to its gross operating income dollar amount. It is expressed as a percentage.

Operating Expenses

÷ Gross Operating Income

= Operating Expense Ratio

10. Debt Coverage Ratio (DCR)

A ratio that expresses the number of times annual net operating income exceeds debt service (I.e., total loan payment, including both principal and interest).

Net Operating Income

÷ Debt Service

= Debt Coverage Ratio

DCR results,

Less than 1.0 – not enough NOI to cover the debt

Exactly 1.0 – just enough NOI to cover the debt

Greater than 1.0 – more than enough NOI to cover the debt

11. Break-Even Ratio (BER)

A ratio some lenders calculate to gauge the proportion between the money going out to the money coming so they can estimate how vulnerable a property is to defaulting on its debt if rental income declines. BER reveals the percent of income consumed by the estimated expenses.

(Operating Expense + Debt Service)

÷ Gross Operating Income

= Break-Even Ratio

BER results,

Less than 100% – less consuming expenses than income

Greater than 100% – more consuming expenses than income

12. Loan to Value (LTV)

This measures what percentage of a property’s appraised value or selling price (whichever is less) is attributable to financing. A higher LTV benefits real estate investors with greater leverage, whereas lenders regard a higher LTV as a greater financial risk.

Loan Amount

÷ Lesser of Appraised Value or Selling Price

= Loan to Value

Secondary

13. Depreciation (Cost Recovery)

The amount of tax deduction investment property owners may take each year until the entire depreciable asset is written off. To calculate, you must first determine the depreciable basis by computing the portion of the asset allotted to improvements (land is not depreciable), and then amortizing that amount over the asset’s useful life as specified in the tax code: 27.5 years for residential property, and 39.0 years for nonresidential.

Property Value

x Percent Allotted to Improvements

= Depreciable Basis

Then,

Depreciable Basis

÷ Useful Life

= Depreciation Allowance (annual)

14. Mid-Month Convention

This adjusts the depreciation allowance in whatever month the asset is placed into service and whatever month it is disposed. The current tax code only allows one-half of the depreciation normally allowed for these particular months. For instance, if you buy in January, you will only get to write off 11.5 months of depreciation for that first year of ownership.

15. Taxable Income

This is the amount of revenue produced by a rental on which the owner must pay Federal income tax. Once calculated, that amount is multiplied by the investor’s marginal tax rate (I.e., state and federal combined) to arrive at the owner’s tax liability.

Net Operating Income

– Mortgage Interest

– Depreciation, Real Property

– Depreciation, Capital Additions

– Amortization, Points and Closing Costs

+ Interest Earned (e.g., property bank or mortgage escrow accounts)

= Taxable Income

Then,

Taxable Income

x Marginal Tax Rate

= Tax Liability

16. Cash Flow After Tax (CFAT)

This is the amount of spendable cash that the real estate investor makes from the investment after satisfying all required tax obligations.

Cash Flow Before Tax

– Tax Liability

= Cash Flow After Tax

17. Time Value of Money

This is the underlying assumption that money, over time, will change value. It’s an important element in real estate investing because it could suggest that the timing of receipts from the investment might be more important than the amount received.

18. Present Value (PV)

This shows what a cash flow or series of cash flows available in the future is worth in today’s dollars. PV is calculated by “discounting” future cash flows back in time using a given discount rate.

19. Future Value (FV)

This shows what a cash flow or series of cash flows will be worth at a specified time in the future. FV is calculated by “compounding” the original principal sum forward in time at a given compound rate.

20. Net Present Value (NPV)

This shows the dollar amount difference between the present value of all future cash flows using a particular discount rate – your required rate of return – and the initial cash invested to purchase those cash flows.

Present Value of all Future Cash Flows

– Initial Cash Investment

= Net Present Value

NPV results,

Negative – the required return is not met

Zero – the required return is perfectly met

Positive – the required return is met with room to spare

21. Internal Rate of Return (IRR)

This popular model creates a single discount rate whereby all future cash flows can be discounted until they equal the investor’s initial cash investment. In other words, when a series of all future cash flows is discounted at IRR that present value amount will equal the actual cash investment amount.

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Going Neutral on Miami Real Estate Investing

Well going back to the topic, we should keep in mind that there are emotions associated with color our senses are heightened and we react to certain hues and certain feelings come out with certain colors. That also applies on analyzing real estate. Unfortunately, we cannot generalize that red will make you angry, blue will sooth you and yellow will make you indecisive. It is also known that the psychology of color is a lot more complicated than that and different colors affect different people in different and unpredictable ways. Basically the truth about it is that Miami real estate is something that people should really consider and analyze as well.

Judging on what the value of the colors about the real estate expression, you need to be at least knowledgeable about the analysis of it. I’m not going to go into details about the colors that were finally chosen, but the whole point of this is that as a Miami real estate seller, you have the ability to control certain aspects of how people will feel when they walk into your home. There are actually some important analyses on it because most of the time the general thought on it is that Miami real estate value everything that can be related to the market. Although going at it with a general knowledge can always give you the basic steps on it.

Other known things about real estate can always be known about progress in it. Keeping colors in the off-whites and light beige color scheme is not only the best way to feature elements within a property, but the best way for people to be unbiased when viewing your Miami real estate. When you are competing against so many other properties for sale, wouldn’t it make sense for you to try to make that first visit as pleasant as possible, without instilling feelings that are out of your control? That’s the reason for neutral in the Miami real estate.

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