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Private Lender for DSCR Loans and Fix & Flip Loans

## What is a REIT?

 

A "REIT" is a real estate investment trust. REITs are companies that own -- and typically operate -- income-producing real estate or real estate related assets (i.e. mortgages). REITs are designed to be tax efficient: in order to qualify as a REIT, at least 90% of taxable income must be paid out to shareholders annually. For this reason, REITs typically offer attractive dividend yield, as well as long term capital appreciation as real estate values rise.

 

While most REITs are publicly traded on stock exchanges, some are privately held. REITs were first created in the 1960s and now represent a multi-trillion dollar asset class. Equity REITs tend to own one specific type of real estate -- single family residential, multi-family residential, office, industrial, retail.

 

## What are some of the largest residential REITs?

 

- Invitation Homes (Ticker: INVH, Type: single family)
- American Homes 4 Rent (Ticker: AMH, Type: single family)
- Equity Residential (Ticker: EQR, Type: multi-family)

 

For more information about REITs, visit [Nareit](https://www.reit.com/), the National Association of Real Estate Investment Trusts. 

 

## Content related to REITs

 

- [SFR](https://www.offermarket.us/real-estate-glossary/sfr)
- [Dispositions](https://www.offermarket.us/real-estate-glossary/dispositions)

A "REIT" is a real estate investment trust. REITs are tax-efficient financial vehicles that hold real estate or real estate related assets (i.e. mortgages) and are either publicly traded or privately held. 

REIT - Real Estate Investment Trust - OfferMarket Glossary

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What is REIT in real estate?

The **Scope Of Work** is a document prepared by you (the real estate investor) or your general contractor to communicate, in detail, all of the work planned for a fix and flip, fix and rent or ground up construction project.

 

The scope of work is one of the most important loan processing documents because it is used by the appraiser to determine the [after repair value (ARV)](https://www.offermarket.us/real-estate-glossary/arv-after-repair-value) of the property. Your private lender (underwriter, loan committee) uses the ARV opinion from the appraisal report to determine the loan amount, and whether or not the deal even makes sense to fund.

 

## Avoid Low Appraisal With A Solid Scope Of Work

 

If your scope of work is not thoughtfully prepared, your appraisal may come back low and the following can happen:

 

- your loan may not get approved (deal economics don't work)
- you need to get the property re-appraised or request revisions from the appraiser (time consuming and seller can back out)
- you need to fund more of your project out of pocket because of a lower than anticipated loan amount

 

## Scope Of Work Example

 

<iframe src="https://docs.google.com/spreadsheets/d/e/2PACX-1vSXX7kyzeWxBLV09vF7UrglDf9upavh5mTzUJRYh8b04ZCHtFjDVpaq6WWTVnJqkBGX7quls_WnvtOv/pubhtml?gid=1964227889&amp;single=true&amp;widget=true&amp;headers=false"></iframe>

 
 

## Scope Of Work Best Practices

 

The most important things:

 

### Provide a detailed narrative 

 

*See "Project Information" section above, this is where you share your narrative when you work with OfferMarket as your private lender.*

 

This is your opportunity to tell the story of this project and convince the appraiser and underwriter that you know what you're doing. Confidently pitch what you plan to do to increase the value of the property in a cost effective manner.

 

### Be specific about each component of your rehab

 

You may be busy and this may be the last thing you want to be spending time on, but the scope of work really is one of the best uses of your time. Not just to optimize your ARV, but also to think through the nitty gritty details of your project. Thoughtful completion of your scope of work will ensure your project is properly budgeted, executed and your profit (flip or cash out refi) is optimized.

 

### Make sure your numbers add up

 

You would be surprised how often borrowers say the rehab budget is one amount (i.e. $100,000) but then provide a scope of work with sections that add up to a different amount (i.e. $111,000).

Scope Of Work is a document used by private lenders and appraisers to evaluate a real estate investor's fix and flip, fix and rent  or ground up construction deal.

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Scope Of Work - Real Estate Glossary | OfferMarket

Scope Of Work

[Net Operating Income](https://offermarket.us/real-estate-glossary/noi-net-operating-income) ("NOI") ÷ Current Market Value

 

Cap rates are a core quantitative metric used by real estate investors to assess the attractiveness of a rental property. It is also used by real estate sellers to set an appropriate asking price for rental investment properties. To standardize cap rate calculation for all investors, mortgage related fees including interest expenses are not included in cap rate calculation.

 

The higher the cap rate, the better. Investors often compare cap rates to the risk free rates of 30 year United States Government Treasury Bonds. Prevailing Cap Rates tend to be lower in competitive markets and for high demand and high conviction asset classes. For example, ecommerce distribution center cap rates should be expected to be lower than cap rates for retail strip mall assets because investors are concerned about the viability of strip malls and bullish on the growth prospects for logistics assets that service ecommerce.

 

### Example

 

A multi-family rental property with NOI of $100,000 and a current market value of $1,000,000 has a cap rate of 10%. NOI is all revenue including rental income, parking fees, service charges, amenities fees minus all operating expenses. Depending on lease terms and management structure, operating expenses can include property management fees, insurance, maintenance, property taxes and utilities.

Capitalization Rate ("Cap Rate") = Net Operating Income / Current Market Value. Learn how to calculate cap rates.

Cap Rate - Capitalization Rate - Real Estate Glossary - OfferMarket

What is Cap Rate in real estate?

### What is Single Room Occupancy?

Single Room Occupancy or SRO is the renting of a house room by room. This is similar to a boarding house where there are very few communal common areas. Typically a fixed price for one person per room, and a slightly higher rate for two people in one room.

 

Single Room Occupancy can be a great rental property investment strategy given the ability to maximize a dwelling's rent revenue. For example, a 2,500 SF 4 BR single family residence that rents for $2,000/month can be converted into an 8 BR SRO that generates $500 per BR or $4,000 per month in rental income. 

 

While in the example above we were able to double the monthly rental income, it's important to make sure you don't double your property management headaches. Rental property investors who are successful with SRO rentals have a disciplined system for screening tenants and often partner with Section 8, social security and veterans programs.

Single Room Occupancy or SRO is the renting of a house room by room. Learn more about single room occupancy at OfferMarket.