Sunday, February 24, 2013

Strata Searches

As with any major investment decision in life, it is crucial to do your research. Before purchasing a house, buyers may be aware of organising a building inspection and pest inspection. These are to ensure the integrity of the proposed purchase and identify any current or potential shortcomings or liabilities that may soon be present.

In Strata Titled properties, one of the tasks in completing proper research and due diligence would require you to arrange an inspection of the records and accounts of the Owners Corporation by a suitably qualified strata searcher. This is called a Strata Search and is covered under Section 108 of the NSW Strata Schemes Management Act 1996.

The Strata Search report should include:
The financial status of the scheme
Pending building works
Special levies
Past works history
All expenses for the past two years
10-year budget analysis
General information on:
Any disputes
Any other areas under investigation

What are the current balances in the Administrative and Sinking Fund account?
Are there any current or proposed litigation matters involving the Owners Corporation?
Are there any limitations or restrictions on the use of common property which may affect me?
Are there any outstanding public liability claims involving the Owners Corporation?
Are animals permitted? and if so, are there any restrictions or conditions?
Have any alterations to the unit been approved by the Owners Corporation?

These can be arranged by you or your conveyancer and are really a must do item for purchases of such value. A physical inspection of the property when you are shopping around will give you a good indication of some things, but without a proper executed Strata Search you would be purchasing without all the facts at hand.

Furthermore, when purchasing property and you can see a lot of work required to be done to the building and common property, you are able to negotiate a lot more aggressively on the eventual sale price. It leaves the buyer in a position of strength and enables a cheaper purchase price, or at least safety in the knowledge that the purchase made is at a fair price.

After you have gained entry into a building you then have the ability to elect yourself on the committee and have a voice in the day to day and also strategic management of the building. This can only improve your awareness and increase the value over time.

About Elevate Property Group

The team at Elevate focus on ethics, excellent customer service and ultimately, better relationships with clients - whether they be vendors, buyers, landlords, tenants or a myriad of other people involved in a property transaction.

Monday, February 18, 2013

Why You Should Have Mortgage Insurance (An Abridged Version)

Mortgage insurance ensures that in the event of the death or the permanent incapacity [commonly known as total and permanent disability (TPD) in the policy] of the loan taker, the outstanding Singapore home loan can still be paid off with the assured sum. For Housing Development Board (HDB) flats, it is mandatory to have a mortgage insurance if you are making your monthly loan installment with your Central Provident Fund (CPF) balances. You can either take the Home Protection Scheme (HPS) which is administered by CPF or eligible type of insurance policies by private insurers.

These type of policies are:

    Whole Life
    Term Life
    Life Riders (must be attached to a basic policy)
    Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider

In Singapore, mortgage insurance is also commonly known as a Mortgage Reduced Term Assurance (MRTA). This is because the coverage / assured sum falls as the housing loan gets paid off.

For private properties, you can only use a private mortgage insurance and it is optional to have one. Consequently, some owners may choose not to have it. However, the below outlines some reasons for buying one.

Property sales

If you believe literally that your house is a goldmine, and that you or your family can always sell it to settle the outstanding mortgage, think again.

Properties are non-liquid assets. The sales process usually involves a lengthy period of time. It takes time to find a willing buyer and after that there are paperwork required to see the sales through.

Finally, you have to wait a while to receive the sales proceeds. Several months will have passed by then. Unless there are savings to fall back on, you or your family may not be able to meet the monthly mortgage repayment.

And this is only the best scenario.

It could be that the property market is in a slump, and your house had fallen into negative equity (ie. market price is below the outstanding loan amount). Selling your house would not only be unable to settle the mortgage but you (or your loved ones) would also be left homeless.

Therefore, having a MRTA safeguards against these eventualities from happening.

Lower premium

Life and term insurance come with mortgage protection. However, these policies command a higher premium compared to a MRTA. The premium for the latter is lower because the coverage falls in line with the mortgage.

In addition, for life insurance you have to pay the premium throughout the lives of the policies; whereas for a MRTA usually no premium payments are required towards the last few years of the mortgage tenure. For regular premium, typically you only need to pay premium for 75% to 90% of the mortgage tenure. For single premium, a portion of the premium can be refunded upon early termination.

Additional insurance coverage at lower cost

Riders or supplementary benefits can be added to a MRTA at lower cost, then if you are to buy a standalone policy. For example, you can buy a rider plan for major illnesses.

Portable coverage

MRTAs are usually portable (as are mortgage insurances that are bundled with life or term insurances). This means if you are to refinance or dispose of your current house and buy a new one, you do not have to buy a new MRTA policy. Do note that if you are to buy a new policy at an older age or when you have a medical condition, you will have to pay a higher premium, or not be able to buy one at all.

Flexible premium payment

For a MRTA, most insurers allow you to select from a range of payment schedule: monthly, quarterly, half-yearly or yearly (regular premium). Or even a one-time lump sum payment (single premium). This flexibility may allow you to better manage your cash flow.

Different type of coverages

Single, joint or dual coverage is available. Joint is not offered by many insurers though.

If the loan is financed by two persons, with joint coverage when either or both parties die, the outstanding mortgage will be taken care of by the insurance and the remaining owner need not pay for the mortgage.

Wednesday, February 13, 2013

Real Estate - Great Investment for Rich Harvests When the Time Arrives

The financial meltdown has seriously affected the real estate market in the United States. The real estate prices are lower than the value of the mortgage, creating a peculiar situation for the government, the financial institutions and the property owners. Recently the federal authorities have pulled up some of the major mortgage providers by for unethical practices of liquidating mortgages without proper grounds. This has offered a ray of hope to those unfortunate mortgage holders whom these institutions cheated without a conscience.

Many property consultants argue that, notwithstanding the horrendous past few years, the real estate in the country is galloping back to its pristine levels. They will foretell a glorious tomorrow with the return of a premium realty market shortly. The realty sector is going all out to woo the clients, with developers displaying their new properties at various Realty exhibitions and seminars.

There are however some area specific properties that are showing strong signs of recovery and the realty agents are making merry at these locations. For other locations where creating demand needs hard work, the consultants are wooing the customers with promises of gifts and discounts galore. Interest rates are at a 40-year-old low and this is really the time for investment in Real estate. For many, spending on real estate under these circumstances is a great investment, which can reap rich harvests when the time arrives.

Notwithstanding the plight of the down trodden, all over the world, the rich are getting richer because they have the financial ability to finish a new deal and leave it to appreciate in value in due time, when the real estate goes up. Several sectors of the real estate have seen a high growth rate, leading to the development of a new category of housing companies, builders and the Nuevo rich buyers.

Some of the key factors that count for development of realty are:

1. Consider wealth flow prudently and make sure of the return on investment
2. Leveraging funds in the belief that the real estate prices will shoot up and give you unbelievable profit
3. The best way of dealing with realty equity is to buy into it. In other words search for a property owner who is willing to sell the property for an amount that is lower than its real value.
4. You choose your property for the profits you think you can make on it. This is no doubt a risky proposition, but an unavoidable one for you.
5. Try to keep your liability limited, as realty investment can become liable to unlimited liability.

Thursday, February 7, 2013

Lease Abstraction at Six-Sigma Accuracy

Lease Abstraction is the process of reading and interpreting a lease document and then summarizing terms into a form called a lease abstract. These data-points can then be systemized into a central data repository called a property database or alternatively known as a lease administration database.

The database is only as good as the accuracy of the data input. My findings in the past are that most companies' databases have significant errors, and this places them 'at risk' of missing critical dates such as lease renewal options or termination options. The end result can be financial losses or the company's operations being placed in jeopardy. For example, a global technology company with operations in the UK missed a lease break option that ended up costing them in excess of 700,000 British Pounds ($1.1M).

Common Abstraction Methodologies

As most corporate real estate organizations utilize brokers, in-house lease administrators, or specialist service providers to perform lease abstraction, it is worthwhile to discuss the benefits and detriments of each of these methodologies:

Lease Abstraction performed by real estate brokers: Real estate is a 'local' business and many companies hire brokerage firms to help with site selection and property transactions. As brokers are familiar with local lease norms, a common methodology is to have the broker to also perform the lease abstraction following completion of the real estate transaction.

While brokers are typically familiar with local practices and lease forms, experience has shown that broker-prepared abstracts are not always complete. My experience is that broker-produced lease abstracts average 82 percent accuracy. It is also worth noting that brokers sometimes document the 'intended' outcome of the lease transaction and not the actual legal obligations shown in the lease.

Abstraction Performed by the Real Estate Organization's Clerical Staff: A normal process for most companies who have a lease administration group is to have lease administrators perform lease abstraction. This is a good methodology when lease administrators have paralegal training and have been trained and tested for abstraction accuracy. However, experience has shown that it takes a minimum of 4-weeks of full-time training for lease abstractionists to reach 96% accuracy--so there is a significant training curve. Also, most corporate real estate groups do not have a review process to detect abstraction errors and there is significant risk of missing critical dates and options.

Abstraction performed by Service Providers: Companies that use outsourced specialists to perform lease abstraction usually achieve the highest levels of accuracy at the lowest cost. Service provider's staff are often legal professionals who have been given additional training and testing to ensure abstraction accuracy--and they have the knowledge to question unusual lease provisions. They perform lease abstraction on a full-time basis and often operate in a production-style environment. The best service providers have multiple in-process measurements and produce very high levels of abstraction accuracy.

Three-steps to Six-sigma Abstraction

Most corporate real estate organizations typically choose between these three methodologies, but, I suggest portfolio accuracy can only be produced utilizing the combination of brokers, outsourcing, and in-house lease administration to perform lease abstraction. The proposed six-sigma process is:

Step 1: Have the broker to perform the lease abstract on a standard lease abstract template. As the broker's abstract will often provide the 'intended' terms, and not necessarily the legal obligations, having the broker to complete the abstract template serves as a quality check for problems in the lease form. Since the broker should perform the lease abstract as part of performing the property transaction, there should be no additional charge for this service.

Step 2: Outsource the primary lease abstraction work to specialist service providers. Specialists companies perform this type of work on a full-time basis, and are highly efficient. Outsourced service providers can most often perform the work with higher levels of accuracy at only a fraction of the cost of having the abstraction done by in-house lease administrators.

Step 3: Have lease administrators to take a statistical sampling of the quality of the lease abstracts being received from the service provider. The process of checking dates and monetary amounts does not take too much time and also serves as a quality check of the performance of the service provider.

In summary, experience has shown that by utilizing this simple three-step process, companies achieve a 20-30 percent cost savings via outsourcing and this considerably increases the accuracy of the lease administration database. Higher accuracy will also reduce the risk of overpayment of lease-related expenses and missed critical dates. Additionally, in-house lease administraton staff can be redeployed to other activities that promote portfolio savings such as data analytics, benchmarking, and desktop audits.

Keith Roberson is Managing Director of PropertyPERFORMAX, LLC., a leading provider of business process outsourcing services in support of the property industry. Mr. Roberson has managed the abstraction of over 30,000 leases for some of the world's largest companies. Having served in senior management positions in Fortune 100 companies, Mr. Roberson now serves as a speaker and coach to property organizations in support of optimizing property portfolios.

Saturday, February 2, 2013

What Drives a Real Estate Brokerage Business?

Inventory: The lifeline of a property broking business is the inventory that an agent has to offer the real estate customer. When a person walks into a real-estate agent's office and he finds a good number of options of properties matching his needs, he goes back satisfied and happy that it is possible to get options for the location of his choice.

Personal Time: Without giving personal time into the business, it is impossible to expect that property business can grow. The fact remains that the property is still bought because of relationship building process that an agent carries out with his customers. Without giving it full time, it is impossible to succeed in the property broking business.

Trust: Building trust is very important to get more clients. It is very important that property consultants take their business in a way that they are looking to do it for multiple transactions in the year and not just for 1 or 2 transactions in the year.

Technology: The thrust on the use of technology to increase the number of buyers considering your property has never been so big. People use technology to manage their operations, scale it up and then also look at it to list properties and market them in various platforms and channels.

Brand: Building a real-estate brand is critical to one's business. Be it your fliers, collaterals, properties brochures - they should all communicate the same message towards building the brand which is very important. Being in the same place for long also helps build the brand.

Network: Network helps you build a base of people who are in touch with the end-user. It could be the builder, property buyer, seller or any other form of property customer. Also, property agents have a good network which can be used to build and sell inventory to customers. Ultimately, what matters is your ability to meet customers' requirement to complete the transaction.

Referral: A true worth of a real-estate agent is the number of referrals it can generate. If your past clients, business partners, vendors all are referring clients to you - you have really scaled up your business.

More than 60% of a person's net worth is in real estate. Property brokerage is one of the most unorganized industries in India. In spite of the fact that the government has regulated all other asset classes like insurance, mutual funds, stock broking, real-estate remains to be the only industry which seems to be unregulated and unlicensed. The only entry barrier to a realtor joining the real estate broking industry is a mobile phone and a visiting card. This makes property broking a place where there is quick money, single transaction brokers and various people willing to do transactions.