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Commercial Multi Unit Riches

Commercial Multi Unit Riches. "Courage is doing what you're afraid to do. There can be no courage unless you're scared." — Eddie Rickenbacker "All adventures, especially into new territory, are scary." — Sally Ride. Your Homework Was To: . Identify Your Property Criteria

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Commercial Multi Unit Riches

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  1. Commercial Multi Unit Riches

  2. "Courage is doing what you're afraid to do. There can be no courage unless you're scared."— Eddie Rickenbacker "All adventures, especially into new territory, are scary." — Sally Ride

  3. Your Homework Was To: • Identify Your Property Criteria • Document Specific Benchmarks and Milestones • Create Your Personalized Marketing Strategy • Mail 100 Letters Weekly • Clearly Define and Document Your Goals, Strategies and Objectives • Create the Elements of Your Credibility Portfolio • Reach Out - Connect - Build Relationships – Network • Identify Centers of Influence • Create YOUR Newsletter • Review and Become Familiar with the Property Package • Practice Analyzing Property Information

  4. easurable S M A R T pecific ttainable elevant imley

  5. Gross Collected Rent- the income of a business from all sources before deducting allowable expenses Effective Income - Gross Income less vacancy and collection allowance, plus miscellaneous income Net Operating Income - Income after deducting all operating expenses but before deducting income taxes and interest Debt Service - the total of annual costs in principal, interest and charges related to the mortgage Cash flow - A measure of a company’s financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit minus amounts charged off for depreciation, depletion and amortization. Analysis of a Multi-Unit Property

  6. Capitalization Rate – Cap Rate In commercial real estate, cap rate, or capitalization rate, is used to determine the values of income producing properties such as apartments of five units or more, office buildings, strip malls and other such properties. The cap rate can represent extremely different things to different people in respect to their interests in commercial real estate. How it works…..

  7. Cap Rate Capitalization Rate (Cap Rate) = Net Operating Income (NOI) Value / Sales Price / Asking Price

  8. Cap Rate has two main components which area: Net Operating Income (NOI) and Sales Price/Value of the property. Divide NOI by the Sales Price/Value of a property; you receive the Cap Rate. If you have 2 of the 3 components you can determine the variable in the equation. The different equations used to determine any of the three variables are below: 1. NOI / Value = Cap Rate 2. NOI / Cap Rate = Value 3. Value X Cap Rate = NOI As you can see, depending on the information you have regarding the property, you can determine any of the three variables. OK!!! So What? Why Do I Need to Know the Cap Rate?

  9. "A dream is your creative vision for your life in the future. You must break out of your current comfort zone and become comfortable with the unfamiliar and the unknown."— Denis Waitley

  10. Safe Investment: Cap Rate of 5% Avg. Investment: Cap Rate of 10% Risky Investment: Cap Rate of 20%

  11. Debt Service Coverage Ratio - DSCR It is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be a minimum of 1.25, preferably 1.35+. That would mean the property is generating enoughincome to pay its debt obligations. In general, it is calculated by: A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95,  would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.

  12. Cash on Cash Return Cash on Cash Return is probably the most important ratio you need to focus on when evaluating the performance of a property investment. Cash on Cash Return is the property's annual net cash flow divided by your net investment, expressed as a percentage. EXAMPLE: If the net cash flow from a property is $10,000, and the cash invested in the property is $100,000, then the Cash on Cash return is calculated to be 10% ($10,000/$100,000).  The net investment in property is the cost of the property less the amount you borrowed. A way to view this ratio is to compare it to a return of a certificate of deposit.  You deposit money in the bank and the bank pays you an annual return, say 5%.  The 5% is the Cash on Cash ratio. 

  13. "There is one quality that one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it. " — Napoleon Hill

  14. Cash on Cash Return Net Operating Income (NOI) – Debt Service (Cash Flow) All Acquisition Costs(Including Down Payment)

  15. I R x V Income (NOI) Return on Investment Value (Sales Price)

  16. Calculating Monthly Payments You Need 3 of the 4 Numbers Above

  17. Calculating Your Payments Calculate the number of payments per year by the number of years for the loan Ex. 12 payments per year x 30 years = 320 Payments Enter 320 and Press “N” on financial calculator Enter Interest Rate and Press “I/Yr” Enter Purchase Price and Press “PV” Press “PMT”

  18. "If not you, then who? If not now, then when? " — Hillel "The difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next. The difference between the two is the difference between living fully and just existing. " — Michael E. Gerber

  19. Calculating Payments Calculate Yearly Payment on a $850,000 Mortgage at 7% with a 20 Year Amortization? Calculate the Interest Rate on Monthly Payment of $5,800 with a Value of $720,000 and a 25 Year Amortization? Calculate the Sales Price of a 32 unit Apartment Building with a Monthly Payment of $8,425 at an Interest Rate of 8.5% Over a 20 Amortizati

  20. Answers…. $6,590.00 9.9% $970,819.80

  21. Analyzing Rule of Thumb Use Actual Figures and Expenses.. If not then the “rule of thumb” applies as an average of expenses 5-10% - Physical or Economic Vacancy Apartments – 45-50% Mobile Home Communities – 40-45% Self Storage Facilities – 35-40%

  22. Detailed Rule of Thumb

  23. "Do not wait; the time will never be ‘just right’ to invest in your future; financially, spiritually or physically. Start where you stand right now, today and work with every resource and tool you have been blessed with that you have at your personal command. If you allow your resources to sit idle waitin’ for that perfect opportunity, it will not come and you will surely lose all the possible benefits. What you don’t realize is the abundance of more resources and better tools that are and will be provided to you as you go along." — Napoleon Hill

  24. Phases of Analyzing Phase 1- “Sniff Test” If the property passes then contact seller/broker for additional information on property. Questions to ask, “I am interested in the property located at 123 Main Street. Is it still available? Would you please send me the property package and any info you have? “I have a Seller Questionnaire. May I send it to you?” When you get information back then move to…

  25. Income & Expense Statements Rent Roll Samples Property Information Package From Seller Income and Expense Statement Rent Roll Seller Questionnaire

  26. Let’s Analyze Your LOI has been accepted on a 92 unit property. The sales price is $2,000,000 with a 6.5% interest rate for 30 years. The seller will finance with a 20% down payment (DP). The NOI is verified with actual income and expenses of $224,000 over the past 12 months. The closing costs are $92,000. Average market value of the cost per unit is $55,000.

  27. What is the cost per unit? What is the cap rate? What is the annual debt service ( mortgage payment)? What is the monthly payment? What is the annual debt service?

  28. What is the cost per unit? Purchase Price (PP) / Number of Units = $21,739 What is the Cap Rate? I = NOI $224,000 so R = .112 or 11.2% R x V $2,000,000 What is the Annual Debt Service (Mortgage Payment)? Your DP is 20% so $400,000 Mortgage Amount (PV) is $1,600,000 Interest Rate is 6.5% Term is 30 years / 360 Payments What is Monthly Payment? $10,113.10 What is Debt Service? $121,357.30

  29. What is the Debt Service Coverage Ratio (DCSR)? DCSR = NOI / Mortgage $224,000 = 1.8 DSCR $ 121,357.30 So far is this a property you would buy?

  30. "Opportunity is missed by most people because it is dressed in overalls and looks like work." — Thomas A. Edison "The men who try to do something and fail are infinitely better than those who try to do nothing and succeed." — Lloyd Jones

  31. Phases of Analyzing Phase 11- Analyze Manually “Long Hand” Use the Rags to Riches Analyzer and Property Data If Phase 11 Analyzing Provides Acceptable Figures to You Then It’s Time to Draft Your… Letter of Intent ( LOI )

  32. Letter of Intent (LOI)

  33. Initial Site Visit Due Diligence Checklist

  34. Assignments for Class 3 Contact Brokers Request Property Packages Analyze the Property Packages Continue Networking to Identify Private Investors Continue Mailing Seller Letters to Identified Markets

  35. "Tomorrow you will be more DISAPPOINTED by the things you DIDN'T do then by the ONES you did today. So pull up your anchor, sail away from this safe HARBOR in which you sit, allow the WINDS to catch in your SAILS. TAKE ACTION. EXPLORE. DREAM. DISCOVER."— Tammy Phelps

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