Pricing is a full service full time job

By
Real Estate Agent with The Virtual Real Estate Team 104556
https://activerain.com/droplet/57tD

When it comes to property pricing we typically think about the comparable approach and then dig down into details. We can also add absorption rate so we can hone in one the supply and demand that helps us dictate a probable selling price. There is also the added extra of subjective thinking since no home pricing for a listing is totally objective. However, for me as an investment specialist who works almost exclusively with builders, setting a price involves a different set of criteria. What I like about how I price is that I am dealing with mostly objective criteria which is one of the reasons I love my specialty.

Follow the Metrics: I am going to elaborate on the 4 criteria I use to establish pricing with builders or even existing sales in a later post. For this post the four are capitalization rate, cash on cash return, internal rate of return, and yearly increases in equity. This is something I can show the builder and if for instance the minimum cap rate should be 7.5% then I can show this to them on paper.

Property Management input: A key factor for any investor is cash flow and in order to convince builders that the spread sheets are real, any rent should be set by a third party that has the trust of the builders. This should not be pie in the sky that entices an investor then disappoints them, it should be based on historical data.

Quantity matters: There is one builder I have worked with for 13 years who now is independent of a partner and when I started him up again three years ago 40 homes was his typical yearly build. Next year we should hit 200 doors together for investors. This is where the time value of money comes into play with constant cash flow for him with no down cycles. It allows him to negotiate better labor and material deals that also allows him to reduce prices for the investor purchases.

That wraps up this part but in part three I will get more into the four metrics in pricing and in part four I want to talk about integration of a system that covers all parties.

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Rainmaker
215,270
Eva B. Liland Century 21 Doug Anderson
Century 21 Doug Anderson - Lancaster, CA
Glad to be of Service 661-714-1643

It is all Greek to me and I look forward to learning more about your subject.

Oct 01, 2017 03:19 PM #2
Rainmaker
2,899,549
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

From 40 to 200 doors is quite an increase in activity, Joe.  You cover a fascinating topic in this post.

Oct 01, 2017 05:02 PM #3
Rainmaker
1,027,260
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Excellent post on pricing from a perspective of which many of us are unaware.  Very interesting! 

Oct 01, 2017 05:05 PM #4
Rainmaker
2,706,962
Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Wonderful,  informative post Joe Pryor and I look forward to the next in this series.  Have a great week!

Oct 01, 2017 05:42 PM #5
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Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

You are a real specialist and though I understand what you do, I have no desire to do it. You are very good at it.

Oct 01, 2017 07:35 PM #6
Rainmaker
3,403,549
James Dray
Fathom Realty - Bentonville, AR
Exceptional Agents, Outstanding Results

Good morning Joe.

That is one heck of an increase from 40 to 200...  Looking forward to your next post

Oct 02, 2017 03:14 AM #7
Rainmaker
2,286,540
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Joe Pryor - What you do is far more advanced than what the average or regular Real Estate Agent does. I admire your knowledge and expertise. The best way I can relate to what you explained is this is something even a buyer of a Bed and Breakfast would need to understand before deciding to manage and own a B&B. Would you agree?

Oct 02, 2017 05:45 AM #8
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Doug Rogers
Bayou Properties - Alexandria, LA
Your Alexandria Louisiana Agent

Nice post full of useful information. Have a great week!

Oct 02, 2017 06:55 AM #9
Rainmaker
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Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

I got my start in real estate by working investments and selling properties to first-time investors as well as seasoned. It is a lot more work. That's why I eventually gave it up and went into carpets and drapes, as we used to call it back in the 1970s. Well, that and the Tax Reform Act of 1986 put quite a damper on things.

Oct 03, 2017 08:05 AM #10
Rainmaker
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Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Joe,

You are an expert in investment property and I am sure your clients trust your methodology to the tee. It is why you are successful and trusted. 

I am lucky to have a really strong local network when I am asked questions. For clients who want to rent their property, I have a local who is dead on the estimates he comes up with. It allows me the ability to concentrate on the right property for my investor. 

Oct 03, 2017 12:05 PM #11
Rainmaker
1,187,840
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

You certainly have a very interesting niche, Joe and you know what you are doing. Pricing a property is difficult enough on a regular sale. You seem to have a great formula to get it done right.

Oct 03, 2017 04:36 PM #12
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Gayle Rich-Boxman Fishhawk Lake Real Estate
John L Scott Market Center - Birkenfeld, OR
"Your Local Expert!" 503-755-2905

Joe, your area of expertise is something totally foreign to me! One of the many great items of interest here in the Rain...the learning curve. 

Also, it prompts me to write about how I go about pricing in my area--completely different than yours. 

Ahhh, variety! 

Oct 03, 2017 06:40 PM #13
Rainmaker
636,567
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Thanks Joe, it's always interesting to learn about pricing from the investor point of view. In our area, there is a severe shortage of full time rentals.

Oct 06, 2017 11:50 AM #14
Rainmaker
3,069,179
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Interesting read about working with investors, builders and the pricing metrics Joe Pryor !

Oct 06, 2017 02:46 PM #15
Rainmaker
1,434,894
Yolanda Cordova-Gilbert
Richmond, TX

Joe,

 I will have to start reading this series as I am now back with a builder I think we are too pricey for investments but I will take a look!

Oct 06, 2017 02:55 PM #16
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Thank you, Joe, for another interesting look into your part of the business. I've always been intrigued with investment clients and feel like it takes me twice as much time working with them (because I'm used to resales and new construction sales) but, so worth the time input!

I found it interesting about having a 3rd party cite the rental income for your investors - do you have someone in each area that you work with to do this for you?

Have a great weekend, Joe!

Oct 06, 2017 07:35 PM #17
Rainmaker
6,162,312
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Thank you very much, Joe, for sharing some of your very successful business practices.

Oct 07, 2017 10:48 AM #18
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MichelleCherie Carr Crowe Just Call...408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Joe, I look forward to learning more from you as you expand this series on pricing properies. 

Oct 15, 2017 01:42 PM #19
Rainmaker
3,252,921
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Joe

Pricing real estate right takes effort and skill.

Good luck and success

Lou Ludwig

Oct 16, 2017 06:34 PM #20
Rainmaker
3,252,921
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Joe

I stopped back to bookmark your post.

Good luck and success.

Lou Ludwig

Oct 26, 2017 07:57 PM #21
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Joe Pryor

REALTOR® - Oklahoma Investment Properties
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