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Multi-Unit Rags to Riches

Multi-Unit Rags to Riches. Month 1 – Agenda Identifying Markets & Marketing Strategies. Locating Multi-Unit Opportunities Identifying Possible Markets Marketing Strategies Acquisition – Analysis “In – Field” Physical Due Diligence Identifying Value Plays Turn Key vs. Reposition.

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Multi-Unit Rags to Riches

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  1. Multi-Unit Rags to Riches

  2. Month 1 – AgendaIdentifying Markets & Marketing Strategies Locating Multi-Unit Opportunities Identifying Possible Markets Marketing Strategies Acquisition – Analysis “In – Field” Physical Due Diligence Identifying Value Plays Turn Key vs. Reposition

  3. Private Money – Equity Partners Syndication Working With Commercial Banks Property Management “In - Field” Building Your Team Rehab Budget & Scope of Work Contractors Working With City, Town, County Month 2 – AgendaFunding & Financing

  4. Due Diligence Operations – Management of Your Team Forms & Documentation Settlement Preparation “In – Field” Property Take Over 1-3-5 Year Plan Resident Relations Investor Relations Month 3 – AgendaDue Diligence

  5. Your Homework Was To: • Research Possible Markets of Interest to You • Identify Those Markets • Indentify the Market Cycle • Research and Understand the Market • Contact and Communicate with Commercial Brokers/Realtors • Identify Property Types Your Interested In Apartments, Mobile Home Communities, Self Storage 7. Order a List from www.DunHills.com

  6. Marketing Strategies for Multi-Unit Investing Identify Property Criteria • “Sweet Spot” - $500,000- $2,000,000 • Apartments – Mobile Home Communities – Self Storage • Target Market Areas Selected • A – B – C – D Properties • Size of Property • Non – Performing vs. Reposition • “Per Door” Costs • Online Market Research – Get a Feel for Market

  7. Marketing…Marketing…Marketing • Consistent Marketing Message for Properties in Target Market (s) • Consistent Marketing Strategy of Yourself aka… Networking and Building Relationships • Marketing of Property Opportunity aka… Property Package • Marketing for Potential Buyers aka.. Wholesale Opportunities

  8. The Marketing Madness

  9. I’m Interested In Buying Your Property! Read On… Owners Name Address City, State, Zip Dear (First Name), I’m interested in purchasing your property at 73 Soloman Street Martinsville, VA. Are you interested in selling? I currently hold a portfolio of properties similar to yours and I am looking to add more. As a property owner, I realize that there are a number of reasons why someone may be interested in selling. Everyone has their own reason and my question to you is, are you ready to sell now? If so, I am ready to buy. I can close quickly or delay the closing as long as you like. Please contact me at your earliest convenience so that we can discuss the sale of you property. Call me now at 555-5555. I look forward to hearing from you. Sincerely, Your Name P.S. To Get The Best Price For Your Property, Call Me Now At 555-5555

  10. Date Dear Property Owner, My name is Tammy and I am interested in purchasing your property located at 123 Main Street in Harrisburg, PA. Are you tired of dealing with tenant issues? Are you ready to be free of the headaches and hassles? Are you ready to just simply move on? If you’re considering selling your property, let’s talk because I’m ready to buy. I can close quickly or I can take as long as you’d like. The best part is, you don’t have to pay a real estate commission because there will be no agent involved! The choice is yours. Call me now at 703-555-5555 so we can discuss the sale of your property. Hey, even if you don’t want to sell at this time, I’ll let you know what the fair market value for your property is in this market. I look forward to hearing from you! Sincerely, P.S. Finally rid yourself of tenant hassles, get a fair price for your property, not pay a realtor’s commission and get to settlement quickly, Lets Talk!!! Reach me directly at 703- 555-5555!

  11. The Marketing Madness

  12. The Marketing Madness • Clearly Defined Goals and Objectives • Self Evaluation • Your Risk Tolerance • Time Management

  13. “A Relationship is NOT Something that You Pursue…It’s What Happens to You When You Are Immersed in Serving the Dreams of Others!” - Tom Peters

  14. Credibility Portfolio

  15. “It Really all Boils Down to One Simple Element… Those Who Really Care and Those Who Really Don’t!” -Dan Zadra

  16. In Order to Harvest You Must First …

  17. Carefully Plant Your Crop By Hand

  18. Relationship Marketing F amily O ccupation R ecreation M oney

  19. Identify 4-5 Centers of Influence in Your Life Family Friends Co-Workers – Associates – ???? Marketing Madness With Newsletters

  20. Your newsletter should have a strategic outline that, when followed, account for a higher read through and response rate. The newsletter should contain the following categories and then listed in order of suggested appearance. Title/ Contact Info./ Issue Number/ Date/ Inside the Issue Table of Contents Educational Information Personal Information Financial Influences Success Showcase Call To Action Vision Statement

  21. The Newsletter

  22. The Property Package CONTENT PAGE Overview Executive Summary Location Map Investment Highlights Equity at Resale Projected Owner Cash Flows and Returns Property Package Assumptions and Property Information Marketing the Opportunity

  23. The Property Package Financial Assumptions Mortgage Information Five Year Proforma and Budget Acquisition Expenses Floor Plans Area Demographics Risks Commitment Instructions Marketing the Opportunity

  24. Wholesale Exit Strategy Build Your “Buyers List” – Gold Mine If Seller isn’t Interested in Selling; Identify if There is Interest in Acquiring Additional Properties in Area Document Their Criteria – Wants & Needs What’s the Wholesale Paycheck Worth to You? Just Assign the Ratified Contract Complete Physical & Financial Due Diligence Complete the Property Package Complete 3rd Party Reports Marketing the Opportunity

  25. 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

  26. 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…..

  27. 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?

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

  29. So Like Ok! Now What?

  30. 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.

  31. 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. 

  32. 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%

  33. Detailed Rule of Thumb

  34. 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…

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

  36. 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 )

  37. Assignments for Class 2 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 Make Contact and Interview Share Your Investment Criteria • Example..20-100 Multi-Family Apartment Units • 9-11 Capitalization Rate ( Cap rate) • Age of Building Criteria • Areas of Focus • Occupancy & Vacancy Preferences • Ask Questions about their Specific Knowledge of Area • Path of Progress in the Area • Preferred Zip Codes • Their Area of Expertise, Years in Business, Potential Properties • Request Information on Possible Properties

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