This is where creative accounting comes in. The real estate industry is growing at a phenomenal rate and is the second largest employer in India after agriculture. This would take a year to accomplish. Through, all our investigation, we discovered three main areas that were ripe for better management under new ownership: 1. Property investing particularly buying and holding property started out as a means to an end. Real-World Example My partner and I recently purchased a 182-unit property located in Sun City, Arizona, an age-restricted fifty-five-and-older community. Format : PDF, Docs In many cases the problems I find during due diligence either result in a reduction in the price of the property or, better yet, they are fixed before we close escrow. A change may be necessary to improve the property operations. Don’t worry so much about the vehicle whether it’s a letter of intent or a standard purchase and sale agreement from the National Association of Realtors be more aware of the deal points within it. In truth if you’re like most people, once your building is occupied and running well, you may not remember where the building is, let alone where the management plan is. Individually metered is the better scenario because the resident pays their own bills. You should know that as well, but the management company will put those abstractions into marketing dollars. The only time I feel good about evicting someone is when the eviction involves drug dealers. Investing in a Real Estate Investment Trust (REIT) is a popular way to “diversify” into real estate. First. You’ll hear every story and although I feel for some of the people telling them, I also feel for the people who pay their rent on time. Here are our totals: Expenses Seller Prior Year Our Per Unit Pro Forma Actuals Projected Repairs and Maintenance $838 $6,700 $8,010 $8,010 $3,273 $3,273 Utilities $409 $3,273 $3,400 $3,400 $1,000 $1,200 Real Estate Taxes $425 $3,400 $1,200 $15,683 Insurance $125 $1,000 $17,083 Replacement Reserve $150 $1,200 Total Expenses $1,947/unit $15,573 $2.88/sq. The total income for the property falls by $5,669 ($45,120 - $39,451). Step 1: Verify Property Income Even if the seller discloses the current income on a rental property either through a pro forma document or verbally, verify it. How many repairs can my maintenance person handle? now what? Currently they own over 8,000 units in several states including Arizona, Texas, Nevada, and Oklahoma. After all, you want to reap an annual return for years to come, and the higher the better. You can see how impossible it becomes to get top dollar for your property if your rents are below-market. Chapter Ten: Making Sense of It All Now that you have all the information, how do you make sense of it all and know what to look for. In high-demand markets time is not your friend, so I typically email or send a courier to hand-deliver the document to the seller. CHAPTER TEN ACTION STEP Want additional help? Recall that future potential income is the total income the property could generate at today’s market rents, 100 percent occupancy, and by taking full advantage of all other income opportunities. Many people do not get into real estate investing—even though in my opinion it is the best invest ment class in the world—because they do not want to fix toi lets or deal with tenants. At this stage, I’ll just use the capitalization rate provided. Finally, we’ll look at “Replacement Reserve” : Seller P>v Prior Year Out' Per Unit Forma_Actuals Projected Replacement Reserve $150 $1,200 $1,200 The replacement reserve is the funds you put aside for the inevitable replacement of capital items such as appliances, carpets, countertops, roofs, and so on. For example, if there is a laundry room with coin- operated washers and dryers and you do not see the laundry income on the seller’s income and expense statements, you will need to go directly to the company that services the machines and collects the coins to find out how much you should expect on a monthly basis. Look for : • A signed rental agreement on every unit to ensure you have binding contracts. Finally, hiring a professional property management company frees up your time to look for and evaluate your next property investment. File Size : 88.9 MB Call the utility companies and get the last twelve months’ operating history on each account. In fact there was one property that we pursued through the signing of the purchase and sale agreement. ft. Take a look at the total expenses line to see how the numbers differ. • Employees: I want to know who the actual individual is that will be running my building. Step 1: Research and find your ideal home. To do this, we get out our calculator and run the expense totals. Read : 1275, Author : Florian Roski But don’t burn the bridge. Myths of real estate investing: you have to be wealthy, big deals are too risky so start small, flipping places or using no money down will get you rich, some people are just always lucky, you need to know everything, you don’t have time, you need connections to start, and you need to be a skilled negotiator. This is where your finance team member or broker could step in, but I did it myself in a matter of seconds. It’s nice to know where you’ve been, but where you’re going is really more important. Thanks, Webster, I couldn’t have said it better myself. The existing agreements combined were about $21 per unit per month for all 182 apartments, regardless of whether or not the apartment was occupied. We recently found a new landscape company in this way. Once the budget is finished you’ll want to compare it to the actual operating income and expenses of your property and look for any glaring errors or omissions. The purchase price here is actually the purchase price trends for a comparable building in your market. PROPERTY TAXES There are two kinds of property taxes: real property taxes, which are on the real estate property, and personal property taxes, which are taxes on the contents of the property like refrigerators, stoves, dishwashers, and other appliances. Further, the work done during this process makes the actual contract process smoother and faster. The steps to the budget are not all that different. That’s normal. Kim Kiyosaki just told me recently that she was buying a property from a seller whose books showed that for over four years the laundry company had not paid anything to the sellers. If you do not use an outside firm, you’ll need to create your own leases, eviction notices, pet addendums, and so on in accordance of the law. But it has become something much more. We also increased the rent on the units that had exceptionally good locations or outstanding views. I look for a company that invests in its employees and provides training in those areas. Bookmark File PDF The Abcs Of Real Estate Investing By Ken Mcelroy Book The Abcs Of Real Estate Investing By Ken Mcelroy Book This is likewise one of the factors by obtaining the soft documents of this the abcs of real estate investing by ken mcelroy book by online. • Internet revenue. Format : PDF, ePub, Docs For the past year or so, this checklist has remained static. By the time you are done, you may find your offer was too high and needs adjustment. Income  Seller Pro Forma Gross Scheduled Rent $48,000 Less: Vacancy 7% $(3,360) Net Rental Income Plus Other Income $44,640 Total Income $480 $45,120 Take a look below at what happens to our total income when we insert the real rents in the projected column. In almost every instance, they lived in rental housing and many of them had fraudulent Social Security numbers, and some even had criminal backgrounds. How much would it cost? This is typical of larger deals and characteristic of how purchases happen in many states. You should be, too. I never lose sight of the fact that this is a relationship business. In this phase of the process, the goal is to “tie up the property.” What I mean by that is you want to get the property off the market by beginning the process of generating the letter of intent or in some cases executing a purchase and sale contract. There are three types of income to consider with any property: actual income, actual potential income and future potential income. You need to pay careful attention to every detail. Again, when you meet with your property management representative, this person can give you insight on how much your management fees will be, what maintenance costs you can expect, and the nature of those costs. The ABCs of Real Estate Investing Summary. Believe it or not, we don’t self-manage all our properties. Doing the homework helps create sure things. Download it once and read it on your Kindle device, PC, phones or tablets. I want to know what their accounting reports look like, when during the month they produce them, how they deliver them, and what their banking relationships are. Once you have exhausted all the existing income opportunities, you enter lines for any new income opportunities you may add once you take over the property. Use this number as your actual potential income in your budget. And while we’re at it, we should consider any other income generated from sources like laundry facilities, parking, and so on. These are the things I won’t tolerate when it comes to property management: • A company that doesn’t assume a partner mentality and doesn’t communicate to the property owner things like market conditions that affect supply and demand. We have owned this property long enough to tell you that this investment in the van has increased our rentals, occupancy, and cash flow and ultimately the property value. Before you do one on your own, be sure you know your rights and the resident’s rights. The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss (Rich Dad's Advisors (Paperback)) [McElroy, Ken] on Amazon.com. I’m talking repairs to roofs, parking areas, sidewalks, driveways, lighting. Here’s what this table looks like for the property in Phoenix we’re using as our real- world example: Expenses Seller Prior' Year Per Unit Pro Forma Actuals Repairs and Maintenance $838 $6,700 $8,010 $3,273 Utilities $409 $3,273 $3,400 $425 $3,400 $1,000 Real Estate Taxes $125 $1,000 $150 $1,200 $15,683 Insurance $1.947/unit $15,573 $2.88/sq. I thought that too, but then I remembered, I have a team, and they can make the due diligence process much easier, way more manageable, and actually a good time. With that knowledge, we budgeted $54,000 for a twenty-one-person van into our operational projections. Property management companies typically have agreements with companies they can count on at a favored rate based on volume of work. If this is the case with the property you are buying, you will need to re-create the records from the facts you do know. Over a twelve-month period, that equates to $6,048. $22,368 ÷ 0874 percent = $255,926 The offer should be no more than $256,000. The kind of insurance you will need includes property/casualty and general liability. MANAGING THE BUDGET Along with collecting the rent and paying the bills, it is the property manager’s job to manage the property’s operating budget. You can ram your findings down the seller’s throat, plant your feet in the sand, and say, “Take it or leave it.” Better yet, take a tactful, matter-of-fact approach that attacks neither the property nor the seller’s ego. In Real Estate Investing in Canada, you will discover how to cut through the hype and emotion of any real estate market and accurately assess the inherent risks and rewards. Not all property management companies are created equal. Create free account to access unlimited books, fast download and ads free! It lists the number of units, the type, square footage, and rent. Reality hurts particularly if you don’t see it coming. Key Points: The ABCs of Real Estate Investing. Had we not taken this course of action, we would have experienced a mass exodus of good residents, guaranteed. You owe it to your residents to be available and responsive. Over time we were able to lease these first-floor apartments for $75 per month higher than the second-floor apartments. This can and will get you into trouble eventually. The ABCs of Real Estate Investing true By:Ken McElroy Published on 2013-02-28 by RDA Press, LLC. Time will tell. Discuss these with yo ur seller or broker before the due diligence period ends. Accomplish that through your actions. In Recession-Proof Real Estate Investing, accomplished investor J Scott dives into the theory of economic cycles and the real-world strategies for harnessing them to your advantage.With a glossary of terms, articulate visuals, and clear instructions for every type of investor, this easy-to-follow guide will show you how to make money during all of the market’s twists and turns. In most cases you’ll see not only the prior year property tax amounts, but also projections for one or two years out. Buying right means buying at wholesale. You never want to burn bridges in this business. There are many property management software packages that help you manage the operating budget and most of them work this way: When you enter the bills into the system for payment you code them to the correct account in your chart of accounts. We’ll find out all the minute details later in the game. It’s like a domino effect and here are some examples of what I mean: RENTING TO THE WRONG PERSON We recently had a new resident who happened to be a convicted sex offender move into one of the properties we manage. In this business, you have to be tough. MC Companies is a full-service real estate investment and property management group that since 1985 has developed, built and managed multi-family housing communities. But until that day, the cash flow generated from them, and their appreciation in value, ensures that we have the ability to do the things we love today, and in the future. In the buildings my company manages, we go by the letter of the law and make no exceptions for residents who don’t pay their rent on time. Then just type in the property address to get the current figures. The purpose of this entire inspection process is to put an estimated cost to each item in the list. And believe me, numbers and facts take the emotion right out of the process. You’ll have a lot more impact on the variable expenses, so you’ll want to focus on those first. Landscaping, pool service and supplies, and pest control also fall under this category. • Accounting software and capabilities: I prefer to work with a company that has several people in their accounting department. • The condition of the driveways and parking lots. That saves you money—in some cases, lots of it. This is what I do every day with my property management company. You’ll be loving the language in your purchase and sale agreement that says all units must be rent-ready at close of escrow! That’s great. Again, your property management representative can help you determine many of these costs. Had he known that at the time, he might have thought twice about taking the offer. When I’m buying a property, 100 percent occupancy to me means that the rents are too low or the seller is trying to pull one over on me. Format : PDF, Kindle Once your analysis is completed, your spreadsheet should look something like this: Apr? To calculate it, you simply subtract your expenses from your income. Do it monthly and you’ll stay on top of your business. I’ve compiled a list of questions I ask when I’m hiring a property management company. But as you can well imagine, we’re savvy shoppers. CHAPTER EIGHT ACTION STEPS • Visit my Web site (www.mccompanies.com) and print out several sample letters of intent and get familiar with the pro visions and language. Are they cracking and full of potholes? I get really nervous when I see that the seller did not spend a dime on the property in the prior year as this table indicates. Format : PDF, ePub, Docs If you are truly a property investor, you will likely have irons in the fire and have some properties on the horizon. The ABCs of Real Estate Investing Summary. They list critical dates, including when your deposit becomes nonrefundable, when the due diligence evaluation period ends, and your close date. • Down payment: How much do you need down? The same went for alarm service. But either way, you’ll rest much easier after the whole process is over and you know the property you are purchasing has been fully revealed to you. Only the stuff that isn’t found during due diligence is scary to me. Format : PDF, Docs The tasks of a property manager fall into several categories: SOLVING PROBLEMS DAILY The main function of a property manager is first and foremost to implement your property plan, and second to solve problems. From the operating statements and individual ledger cards for each resident you should get an idea of what other types of income exist at the property. • What are the time frames for the physical inspections of all interior and exterior spaces, including units and common areas? And the clock was ticking. Read : 922, Author : Ken McElroy The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss (Rich Dad's Advisors) by Ken McElroy PDF, ePub eBook D0wnl0ad This book will teach you how to: • Achieve wealth and cash flow through real estate I’ve seen it all and our due diligence checklist is compiled from over fifteen years of experience. • Nonsufficient funds fees. Sometimes it is difficult to have all the rents in line with the market, but you should at least have some of them at that level. Free PDF Downlaod The ABCs of Real Estate Investing The Secrets of Finding Hidden Profits Most Investors FREE BOOOK ONLINE That’s impossible! Simply call and ask the rental rate, the square footage, the deposits required, and what is included in the rent. Read : 753, Author : If the operating budget calculations look good for the first year and you project that you will make enough money to achieve your goal, you are ready to move forward and take ownership of the property. As you can see, the property plan that yielded us thousands of dollars in operating income and millions in appraised property value was a simple three-point plan. The ABCs of Real Estate Investing Summary. And at some point you’re going to want to get out of analysis mode and say “Show me the money.” This chapter will show you how to make sense of all the data, and how to put it into a form that will enable you to see exactly where the money-making opportunities are and where they aren’t. It was called purchase price in the previous formula. • What are the time frames after the agreement acceptance date especially for contingencies and close of escrow date? In this section, you’ll see how to assess the expenses. The Domino Effect Property management can be characterized as a whole bunch of small decisions. If they come in higher, then you’ll want to know why. In every apartment building or community that we manage, every applicant is run through a background check. Here are a few what if ‘s you should be asking of the properties you are considering: • What if I increase the rents? When the identities of the terrorists behind the attacks as well as those who took part in the killings were revealed, several news stations reported where they lived and interviewed neighbors. We have an on-call system 24/7 set up for all of our communities. Take your projected total income of $39,451 and subtract your projected total expenses of $17,083 to get your net operating income of $22,368. By now you know I don’t leave much to chance, and buying an apartment building without a solid plan of how I am going to increase income and reduce expenses to maximize my cash flow is not going to happen. Ken is the author of the best-selling books The ABC’s of Real Estate Investing, The Advanced Guide to Real Estate Investing, The ABC’s of Property Management, and most recently his book on entrepreneurship: The Sleeping Giant, where he shares his real-life examples and ideology of how to be successful in business and in life. It is simply a matter of choosing how you want to spend your time. You may feel you’ve just become part of the research business instead of the property investment business. I thought to myself, “If I have all day, every This can include electric, gas, trash, sewer, water, cable, and phone. No one likes to work harder than they have to, including me. A good property management company will help you by creating value if they know the goals of the ownership. By now you will have already done your management plan which guides you as you manage your property to maximize its cash flow. But this usually goes much quicker than the letter of intent. Don’t laugh; it happened to a friend of mine on Maui. I know plenty of people in both camps and they all say the same thing. But for all this work, we still only have words on a page. • Run criminal and credit background checks on every new applicant. There are two ways to get these numbers. Focus on the future and use the next year’s assessment as your projection. Start Your Own Corporation Why the Rich Own their Own Companies and Everyone Else Works for Them Writing Winning Business Plans How to Prepare a Business Plan that Investors will Want to Read and Invest In Buying and Selling a Business How You Can Win in the Business Quadrant The ABCs of Getting Out of Debt Turn Bad Debt into Good Debt and Bad Credit into Good Credit Run Your Own Corporation How to Legally Operate and Properly Maintain Your Company into the Future by Ken McElroy The ABCs of Real Estate Investing The Secrets of Finding Hidden Profits Most Investors Miss The ABCs of Property Management What You Need to Know to Maximize Your Money Now The Advanced Guide to Real Estate Investing How to Identify the Hottest Markets and Secure the Best Deals by Tom Wheelwright Tax-Free Wealth How to Build Massive Wealth by Permanently Lowering Your Taxes by Andy Tanner Stock Market Cash Flow Four Pillars of Investing for Thriving in Today’s Markets by Josh and Lisa Lannon The Social Capitalist Entrepreneurs’ Journeys from Passion to Profits by Wayne Palmer Recipes for Real Estate 100 Formulas for Real Estate Riches, The ABCs of Real Estate Investing - Ken McElroy ( PDFDrive.com ). I know one property owner who is incredibly successful. Cash on Cash = Profit ÷ Down Payment Congratulations! HANDLING STAFFING ISSUES Property managers also handle all staffing issues. That means you’ll be responsible for training and equipping the person you hire with all the knowledge, skills, and materials he or she will need for success. LEGAL AND CONTRACTS Get into the rental property business and you’ll quickly learn that most states have a lot of laws governing the operations of apartments big or small. There is a freedom that comes with that knowledge. When you work with a large management company there should be economies of scale that mean savings to you. File Size : 77.54 MB Had you bought this property at the list price of $338,000 or even at $300,000 you would have been in a negative cash flow situation immediately. You are managing the property for sale and that means you want to demonstrate the property’s highest potential income. Click Get Books and find your favorite books in the online library. Even if the vacancy rate is listed on the pro forma, verify it with the property manager on your team. Number Type Sq. The typical pro forma income table looks like the one below, which contains numbers taken directly from the property in Phoenix. He barreled headlong into a property he didn’t know enough about, just to avoid the big tax bite. You can find the book here. I received a monthly landscape contract on a property we were considering. MAINTENANCE It’s the property manager’s job to maintain the landscaping, paint the apartments and the buildings, mato-do ke sure all the appliances within the rental units are in good working order, and do everything including change the light bulbs in the common areas. Right now you’re probably thinking there are a thousand things to look at related to a property. If they won’t disclose the information, call the owner and ask him or her to contact the utility company and authorize the release. And they can cost a lot. Certainly a more palatable number when you consider your projected net operating income, which is $22,368. I, of course, check the banking references. However, when you are planning to sell your property, you want your rental rates to be at the market rate in the area. MC Companies Team members annually donate more than 2,500 hours to local and national charities. Are they creating problems for other residents? See all formats and editions Hide other formats and editions. To answer that question, we’ll turn to the pro forma expense table. They are designed to be negotiated and the original document you send over is the starting point. You calculate the property income by using the information you obtained on the income statement, rent survey, rent roll, and operating statements. That means that all expenses as well as rental income need to be posted and compared to the operating budget. • Time in business: I look for property management companies in business for at least three years. The Due Diligence Checklist The File Audit Purpose : To verify the actual potential income calculation. And they give you peace of mind that you are not getting into something that may not pan out. It’s damaging to your property as well as to your reputation. This language in a purchase and sale agreement states that you as the buyer are entitled to any and all documents related to the property. Here’s how you verify the income from the numbers on a typical property pro forma in a sales brochure. Because remember, at this point, you are still in due diligence mode, so if you find that the money-making opportunities aren’t there, there is still time to renegotiate the purchase price or pull out of the deal entirely if the numbers simply won’t add up to profit in your pocket.