Here's a sampling of recent, modestly priced, unit by unit amenity upgrade programs that teams are trying to win over renewals:
• Upgraded Closet Designs
• Upgraded Electronic Door Locks
• Upgraded Lighting
• Upgraded Kitchen Counter Tops
• Above Counter Lighting
• Upgraded Plumbing Fixtures
• Upgraded Hardware
• Flat Screen TV Installation
• Special Limited Unit Enhancements
• Comprehensive High Speed Wi-Fi
• Green Enhancements
From a social and service approach, managers are also trying measures such as:
• Valet Trash Removal
• Recycling Programs
• Community Gardens
• Regular Themed Parties/Events
• Group Educational Events
• Outdoor Movie Nights
• Pet Parties
• Off-Site Resident Socials
• Promotional Give-aways or Contests
• Improved Communication Services
• Proactive Maintenance Programs
• Community Retail Discounts
• Service & Product Delivery Programs
The underlying theme here is that the managers that do not except the status quo are seeking and trying new ways to add value to their residents' living experience; serving and providing for your customer without being overbearing, as well as not breaking the bank.
Today's consumer is more demanding than ever. They want to enjoy life while getting the most for their dollar. This doesn't always mean the cheapest. Creating value, and marketing that value will definitely get the attention of the resident keepers.
For cost effective property management software I recommend the software I use Property PRO
To your success,
Mike Bridges
Friday, January 29, 2010
10 Essential Ingredients of a Property Management Agreement
The wise investor has a legal real estate management agreement written to cover all the areas that may cause disputes. The investor and the management company should negotiate any areas they feel problems might arise. Commercial properties will have different points that need to be considered from a residential property. Each agreement will list the key points important to each party.
A management team can be any number of services provided by the manager. The owner needs to have all the necessary services included in the managers compensation. If they are not listed in the agreement the manager will often charge these as additional services. The reputation of the manager and their ability to perform are key elements when the investor selects a manager.
There are several key points that should be included and negotiated in your real estate management agreement .
1. Independent contractor status of the manager. The manager should not become an employee of the owner. As an independent contractor, the owner is not responsible for withholdings and tax obligations on the managers pay. The duties and responsibilities of the manager should be established from the beginning. The owner should interview prospective managers and get outlines of the services they offer.
2. The fee. Is the manager fee a percentage of rent collected or a flat fee? What is included in the normal services? What is charged an extra fee? Is there a fee for extra showings? Do evictions cost beyond the legal fees? How much is the fee? The fee should be clearly stated in the agreement and understood by both parties.
3. Employees of the manager. The real estate management agreement should clearly outline what employees the company will regularly employ. The contract will state if they will be full or part time and if the manager lives on site or off.
4. The contract should state who would actually be handling your property. One person should handle your property all the time.
5. How is the fee collected? The real estate management agreement should point out exactly how accounts are set up for the compensation of the manager and the employees.
6. Detailed information on how rents are collected and bills paid. Will money be put into a reserve account for the managers use? How are excess funds used? What about emergency repair costs? How will they be handled?
7. Outline the types of advertising the company will use. What is the role of the manager in the leasing effort? What forms of advertising do they use? What is the cost? Both parties should decide if they need advertising and how often. The owner will have final approval of all advertising including brochures. The manager is in charge of getting the advertising produced. All material should comply with truth in lending policies, fair housing, ADA and handicap access laws.
8. How will monthly reports be handled? What reports are sent?
9. Termination clause. A well drawn real estate management agreement provides the grounds for termination by either side and renewal rights of any party. The grounds for termination should be clearly stated.
10. Conflicts of interest. The owner should be alert for any deals the manager for his own purposes such as purchasing services through a related company. They should also note when the management accepts management or leasing on other projects that can compete with the owners. These can cause possible areas of conflict.
An investor should have a legal agreement made to outline all possible problems when hiring a manager.
For cost effective property management solutions goto
A management team can be any number of services provided by the manager. The owner needs to have all the necessary services included in the managers compensation. If they are not listed in the agreement the manager will often charge these as additional services. The reputation of the manager and their ability to perform are key elements when the investor selects a manager.
There are several key points that should be included and negotiated in your real estate management agreement .
1. Independent contractor status of the manager. The manager should not become an employee of the owner. As an independent contractor, the owner is not responsible for withholdings and tax obligations on the managers pay. The duties and responsibilities of the manager should be established from the beginning. The owner should interview prospective managers and get outlines of the services they offer.
2. The fee. Is the manager fee a percentage of rent collected or a flat fee? What is included in the normal services? What is charged an extra fee? Is there a fee for extra showings? Do evictions cost beyond the legal fees? How much is the fee? The fee should be clearly stated in the agreement and understood by both parties.
3. Employees of the manager. The real estate management agreement should clearly outline what employees the company will regularly employ. The contract will state if they will be full or part time and if the manager lives on site or off.
4. The contract should state who would actually be handling your property. One person should handle your property all the time.
5. How is the fee collected? The real estate management agreement should point out exactly how accounts are set up for the compensation of the manager and the employees.
6. Detailed information on how rents are collected and bills paid. Will money be put into a reserve account for the managers use? How are excess funds used? What about emergency repair costs? How will they be handled?
7. Outline the types of advertising the company will use. What is the role of the manager in the leasing effort? What forms of advertising do they use? What is the cost? Both parties should decide if they need advertising and how often. The owner will have final approval of all advertising including brochures. The manager is in charge of getting the advertising produced. All material should comply with truth in lending policies, fair housing, ADA and handicap access laws.
8. How will monthly reports be handled? What reports are sent?
9. Termination clause. A well drawn real estate management agreement provides the grounds for termination by either side and renewal rights of any party. The grounds for termination should be clearly stated.
10. Conflicts of interest. The owner should be alert for any deals the manager for his own purposes such as purchasing services through a related company. They should also note when the management accepts management or leasing on other projects that can compete with the owners. These can cause possible areas of conflict.
An investor should have a legal agreement made to outline all possible problems when hiring a manager.
For cost effective property management solutions goto
Finding the Right Real Estate Agent
Is a real estate agent right for you? How can you get the most out of using a real estate agent? What questions should you ask when looking for an agent? While it may be hard to answer such questions, a little research can shed some light on all of the ins and outs of real estate, including working with an agent to buy or sell your home.
This section covers important information about finding the best real estate agent for your needs. We'll explain how you can get help with finding a home by using a buyer's agent, and how a real estate agent can help you sell your home easily. We'll also explore the situations you might encounter when working with a dual real estate agency and discuss the differences between a home that is for sale by owner and a home listed by a real estate agent.
Finding a Real Estate Agent
Choosing the right real estate agent can be a difficult and confusing process. However, working with the right agent may help you sell your house or locate your new home easily and quickly.
Before you being the process of selecting a real estate agent, you should ask yourself what you expect from your agent. You'll want an agent who is aware of the market conditions and active listings in your area. A good real estate agent is also familiar with neighborhoods, school zones, crime rates and more. In addition, you'll probably want to choose an agent who knows about financing options.
You should look for a real estate agent who will keep your best interests in mind while you search for a home. Thus, you'll need to find someone with whom you feel comfortable, and who listens to you and asks questions about what you want out of the process.
Buying a house is a complicated procedure, and the services of a good real estate agent can make the process much easier. To find a real estate agent who meets your needs, you should know which services to expect. Is your real estate agent a good match for your needs? Do you want to find a real estate agent who is also a REALTOR®?
What to Expect From a Real Estate Agent
Find a real estate agent who is aware of local market conditions, neighborhood profiles, local tax laws, school zoning, crime rates and anything else that might affect where and when to buy a home. A good real estate agent should also be able to guide you through financing your purchase.
A real estate agent acts as a liaison between the buyer and seller. In addition to business days, most real estate agents work evenings and weekends as well. Many are also on call in order to be completely accessible to their clients.
You'll want a real estate agent who has your best interests in mind. Look for a real estate agent with whom you're comfortable, and who is willing to listen to you and ask questions to learn more about your needs. A good real estate agent is willing to inform you if your house goals don't match your financial assets, and will provide you with an accurate picture of your buying power.
Here are some other things to consider when looking for a real estate agent:
*Closing knowledge: Make sure your real estate agent is able to properly finalize the contract.
*Experience: Experienced agents will have gone through several similar transactions, resulting in a smoother process. Furthermore, experienced agents will be able to efficiently negotiate the best possible price for you.
* Resources: You want your real estate agent to have all the possible resources, from for sale by owner (FSBO) listings to access to the Multiple Listing Service (MLS). The more resources your agent has, the easier it will be to find a home.
Is Your Real Estate Agent at REALTOR®?
All real estate agents must meet state-regulated licensing requirements, but not every real estate agent is a REALTOR®. A REALTOR® is a real estate agent who is also a member of the National Association of Realtors. As a member, the REALTOR® must abide by a strict code of ethics, which includes treating both the buyer and seller with complete honesty.
A registered REALTOR® is expected to have a more complete knowledge of real estate than a standard agent, and can often access information unavailable to an agent who isn't registered.
Buying a Home
Buying a home can be an exciting process. In the past, most buyers had to go through the steps alone, as real estate agents primarily represented the sellers. Today, however, people looking for a home can enlist the help of a buyer's agent. These agents are committed to helping people find the house they want for the best price possible.
If you choose to use a buyer's agent, you can expect her to do many things, including calculate the market value of houses compared to sellers' asking prices, tell you about new listings, and assist you through the entire home buying process.
Selling a Home
If you're selling a house, a real estate agent is indispensable. A good agent will be able to provide you with an accurate appraisal of your home's market value, and compare your house to other listings on the market in order to get you the best possible price for your home. She should also be able to draw people to your home by using various marketing techniques.
A good real estate agent will also be able to tell you what home improvements you should complete before putting the property on the market. Suggestions may include:
* applying a new coat of paint to interior and/or exterior walls
* cleaning up your yard
* ridding your house of clutter.
For more tips on how to buy your home in less than three years goto Inside Tips
This section covers important information about finding the best real estate agent for your needs. We'll explain how you can get help with finding a home by using a buyer's agent, and how a real estate agent can help you sell your home easily. We'll also explore the situations you might encounter when working with a dual real estate agency and discuss the differences between a home that is for sale by owner and a home listed by a real estate agent.
Finding a Real Estate Agent
Choosing the right real estate agent can be a difficult and confusing process. However, working with the right agent may help you sell your house or locate your new home easily and quickly.
Before you being the process of selecting a real estate agent, you should ask yourself what you expect from your agent. You'll want an agent who is aware of the market conditions and active listings in your area. A good real estate agent is also familiar with neighborhoods, school zones, crime rates and more. In addition, you'll probably want to choose an agent who knows about financing options.
You should look for a real estate agent who will keep your best interests in mind while you search for a home. Thus, you'll need to find someone with whom you feel comfortable, and who listens to you and asks questions about what you want out of the process.
Buying a house is a complicated procedure, and the services of a good real estate agent can make the process much easier. To find a real estate agent who meets your needs, you should know which services to expect. Is your real estate agent a good match for your needs? Do you want to find a real estate agent who is also a REALTOR®?
What to Expect From a Real Estate Agent
Find a real estate agent who is aware of local market conditions, neighborhood profiles, local tax laws, school zoning, crime rates and anything else that might affect where and when to buy a home. A good real estate agent should also be able to guide you through financing your purchase.
A real estate agent acts as a liaison between the buyer and seller. In addition to business days, most real estate agents work evenings and weekends as well. Many are also on call in order to be completely accessible to their clients.
You'll want a real estate agent who has your best interests in mind. Look for a real estate agent with whom you're comfortable, and who is willing to listen to you and ask questions to learn more about your needs. A good real estate agent is willing to inform you if your house goals don't match your financial assets, and will provide you with an accurate picture of your buying power.
Here are some other things to consider when looking for a real estate agent:
*Closing knowledge: Make sure your real estate agent is able to properly finalize the contract.
*Experience: Experienced agents will have gone through several similar transactions, resulting in a smoother process. Furthermore, experienced agents will be able to efficiently negotiate the best possible price for you.
* Resources: You want your real estate agent to have all the possible resources, from for sale by owner (FSBO) listings to access to the Multiple Listing Service (MLS). The more resources your agent has, the easier it will be to find a home.
Is Your Real Estate Agent at REALTOR®?
All real estate agents must meet state-regulated licensing requirements, but not every real estate agent is a REALTOR®. A REALTOR® is a real estate agent who is also a member of the National Association of Realtors. As a member, the REALTOR® must abide by a strict code of ethics, which includes treating both the buyer and seller with complete honesty.
A registered REALTOR® is expected to have a more complete knowledge of real estate than a standard agent, and can often access information unavailable to an agent who isn't registered.
Buying a Home
Buying a home can be an exciting process. In the past, most buyers had to go through the steps alone, as real estate agents primarily represented the sellers. Today, however, people looking for a home can enlist the help of a buyer's agent. These agents are committed to helping people find the house they want for the best price possible.
If you choose to use a buyer's agent, you can expect her to do many things, including calculate the market value of houses compared to sellers' asking prices, tell you about new listings, and assist you through the entire home buying process.
Selling a Home
If you're selling a house, a real estate agent is indispensable. A good agent will be able to provide you with an accurate appraisal of your home's market value, and compare your house to other listings on the market in order to get you the best possible price for your home. She should also be able to draw people to your home by using various marketing techniques.
A good real estate agent will also be able to tell you what home improvements you should complete before putting the property on the market. Suggestions may include:
* applying a new coat of paint to interior and/or exterior walls
* cleaning up your yard
* ridding your house of clutter.
For more tips on how to buy your home in less than three years goto Inside Tips
Friday, January 22, 2010
Building Your Property Portfolio - Getting Started
Buying a property Step 1 - Do your research Step 2 - How much can you afford? Step 3 - Find a lender Step 4 - The buying process
Step 1 - Research
OWNING property has always been the great dream. Whether you are a first-timer or an experienced homebuyer, you need to ask yourself why you want to buy.
Will you want to live in it or are you buying it as an investment to rent it out and pay it off. Do you want a house or apartment, large or small, townhouse or land to build?
Whatever your answer, the more real estate market research you do, the more likely you are to effectively define your goals and understand what’s affordable.
Get onto mailing lists and develop good relationships with real estate agents in the area in which you are looking. Keep in regular contact with them. They can alert you to properties about to come onto the market in your price range.
Determine how much you can afford
Calculate how much you can spend, say one third or less of your pre-tax income in loan repayments. The amount will vary with different lenders, so if you don’t get the deal you want from one, try another.
The loan to value ratio (LVR) is the percentage of the purchase price that lenders will agree to lend. Some lenders will insist you have as much as 10 per cent of the purchase price in a deposit.
Don’t forget to factor in the following costs: legal fees, loan establishment fees, government charges (stamp duty and GST), property and pest inspection fees, moving costs and building and contents insurance.
First home buyers may be eligible for grants and exemptions on stamp duty.
Find The Best Finance Option
Look for your loan at the same time or before you start looking for property.
Do some research online to see who is offering the best mortgage interest rates, then approach them in person to get approval “in principle” for your loan. This means if you need to buy at auction, you have the money organised ahead of time.
Banks, building societies, credit unions, solicitors and mortgage originators all offer home loans. A mortgage broker can help you find the best lender and the best rate for you.
There are many loans on offer, so you will need to do more research to understand the terms: a honeymoon rate offers a cheaper interest rate for the first 12 months; a standard variable rate rises or falls when interest rates rise or fall; fixed rates are fixed for a certain period; a redraw loan means you can pay it off, then reborrow that money – you may have to pay a service charge of say $25 every time you redraw.
The Buying Process
You’ve found the property you want to buy and arranged building or pest inspections. They are good, you make an offer, negotiate the price and the final offer is accepted.
Contact your solicitor or conveyancer to do title or body corporate searches, draw up a contract, then arrange to exchange it with the seller.
Once you exchange contracts you are legally bound to go ahead with the purchase. This is also when you pay your deposit of around 10 per cent of the purchase price.
Sign the contract if you and your solicitor are satisfied that everything is in order. Often there are six weeks between exchange and settlement. During this time, you can arrange building and contents insurance on the property, and income protection insurance for yourself.
On the day you are due to settle, before your solicitor passes over the final cheque (or makes the transfer online) you should ask to inspect the property.
You need to check that no damage has been done to it in the intervening period and that all fixtures and fittings that appear in the contract are still in place.
You don’t have to settle on the property until all these conditions have been met.
For more tips goto Property Express CRM or download my latest guide which includes my free budget and mortgage analyzer. Try Today
Happy Investing!
Mike Bridges
Step 1 - Research
OWNING property has always been the great dream. Whether you are a first-timer or an experienced homebuyer, you need to ask yourself why you want to buy.
Will you want to live in it or are you buying it as an investment to rent it out and pay it off. Do you want a house or apartment, large or small, townhouse or land to build?
Whatever your answer, the more real estate market research you do, the more likely you are to effectively define your goals and understand what’s affordable.
Get onto mailing lists and develop good relationships with real estate agents in the area in which you are looking. Keep in regular contact with them. They can alert you to properties about to come onto the market in your price range.
Determine how much you can afford
Calculate how much you can spend, say one third or less of your pre-tax income in loan repayments. The amount will vary with different lenders, so if you don’t get the deal you want from one, try another.
The loan to value ratio (LVR) is the percentage of the purchase price that lenders will agree to lend. Some lenders will insist you have as much as 10 per cent of the purchase price in a deposit.
Don’t forget to factor in the following costs: legal fees, loan establishment fees, government charges (stamp duty and GST), property and pest inspection fees, moving costs and building and contents insurance.
First home buyers may be eligible for grants and exemptions on stamp duty.
Find The Best Finance Option
Look for your loan at the same time or before you start looking for property.
Do some research online to see who is offering the best mortgage interest rates, then approach them in person to get approval “in principle” for your loan. This means if you need to buy at auction, you have the money organised ahead of time.
Banks, building societies, credit unions, solicitors and mortgage originators all offer home loans. A mortgage broker can help you find the best lender and the best rate for you.
There are many loans on offer, so you will need to do more research to understand the terms: a honeymoon rate offers a cheaper interest rate for the first 12 months; a standard variable rate rises or falls when interest rates rise or fall; fixed rates are fixed for a certain period; a redraw loan means you can pay it off, then reborrow that money – you may have to pay a service charge of say $25 every time you redraw.
The Buying Process
You’ve found the property you want to buy and arranged building or pest inspections. They are good, you make an offer, negotiate the price and the final offer is accepted.
Contact your solicitor or conveyancer to do title or body corporate searches, draw up a contract, then arrange to exchange it with the seller.
Once you exchange contracts you are legally bound to go ahead with the purchase. This is also when you pay your deposit of around 10 per cent of the purchase price.
Sign the contract if you and your solicitor are satisfied that everything is in order. Often there are six weeks between exchange and settlement. During this time, you can arrange building and contents insurance on the property, and income protection insurance for yourself.
On the day you are due to settle, before your solicitor passes over the final cheque (or makes the transfer online) you should ask to inspect the property.
You need to check that no damage has been done to it in the intervening period and that all fixtures and fittings that appear in the contract are still in place.
You don’t have to settle on the property until all these conditions have been met.
For more tips goto Property Express CRM or download my latest guide which includes my free budget and mortgage analyzer. Try Today
Happy Investing!
Mike Bridges
Wednesday, January 13, 2010
What is this House Worth?
I probably answer this question for investors a couple
times every week. The problem is that they don't have
a good formula for determining the most they can pay
and still make a profit - so they're scared to make any
offer. Here's the formula I use for single family homes:
The Maximum Offer (MO) is calculated by first determining
what the house will be worth after renovation which is
referred to as the After Repaired Value (ARV); less the
rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs;
less profit amount desired.
MO = ARV - Rehab - B/S/H - Profit
Let's break that down a little further. To determine the ARV,
study comparable sales data. Comparable sales are those
properties which sold in the last 6 months to 1 year, and
within ½ to 1 mile from the subject house. But other factors
must be considered as well. The more characteristics between
the properties that are similar, the more valid the data. Make
sure that the house itself is similar in square footage, bedrooms
and baths, age, style, and architecture.
Don't worry about condition except as it will affect the amount
of rehab dollars required. Next, look at the neighborhood and
the individual street. Do they look the same? Or is the comparable
property on a beautiful street while the subject property is on
a street riddled with empty littered lots and boarded up houses?
The point is to view the potential investment as your end homeowner
occupant will.
If they could buy your completed investment on the bad street, or
a house on the beautiful street - either for $150,000 - which would
they choose? The other house of course. Which means your house
is not worth the same - it must sell for less to attract a buyer.
Rehab dollars differ from renovator to renovator depending whether
they do the work themselves, use less expensive sub-contractors,
or use an expensive general contractor. The scope of the work
should be the same - it is whatever is required to make the investment
look like the comparable houses (unless the plan is to sell well under
market value). I do not attempt to obtain all of the various contractor
bids when I am making offers. All the real deals would be sold before
I could ever have an offer together! Instead I have developed ranges
of rehab dollars based on the overall condition of the home.
Is it an exact science? No, but neither are the bids - there will always
be something missed. So why not work with a guide that is probably
90% accurate and allows for quick offers?
Buy/Sell/Hold costs include expenses such as appraisals, attorney fees,
title search & title insurance, loan origination fees, debt service, utilities,
insurance, taxes, real estate commissions, and closing fees paid on behalf
of the end buyer. Again, these costs vary depending on each investor's
individual situation. In the Atlanta area, 15% of the ARV seems to be a
good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.
Profit margins are the fun part of the equation. How much do you want to
make? If you're wholesaling the property, you also want to consider how
much you should leave in the deal for the investor buyer to make the deal
attractive.
That's it. That's how you calculate the most you'll pay for a property. But
that's not what you SHOULD pay. It is the maximum you'll pay. It is the
deal-breaker. You will not pay one penny over the MO. Your negotiations
should lead you as far below the MO as possible. The difference in amounts
is additional profit in your pocket. What you SHOULD pay is the minimum
price below the MO that the seller will accept.
Download my excel calculator to generate professional reports
times every week. The problem is that they don't have
a good formula for determining the most they can pay
and still make a profit - so they're scared to make any
offer. Here's the formula I use for single family homes:
The Maximum Offer (MO) is calculated by first determining
what the house will be worth after renovation which is
referred to as the After Repaired Value (ARV); less the
rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs;
less profit amount desired.
MO = ARV - Rehab - B/S/H - Profit
Let's break that down a little further. To determine the ARV,
study comparable sales data. Comparable sales are those
properties which sold in the last 6 months to 1 year, and
within ½ to 1 mile from the subject house. But other factors
must be considered as well. The more characteristics between
the properties that are similar, the more valid the data. Make
sure that the house itself is similar in square footage, bedrooms
and baths, age, style, and architecture.
Don't worry about condition except as it will affect the amount
of rehab dollars required. Next, look at the neighborhood and
the individual street. Do they look the same? Or is the comparable
property on a beautiful street while the subject property is on
a street riddled with empty littered lots and boarded up houses?
The point is to view the potential investment as your end homeowner
occupant will.
If they could buy your completed investment on the bad street, or
a house on the beautiful street - either for $150,000 - which would
they choose? The other house of course. Which means your house
is not worth the same - it must sell for less to attract a buyer.
Rehab dollars differ from renovator to renovator depending whether
they do the work themselves, use less expensive sub-contractors,
or use an expensive general contractor. The scope of the work
should be the same - it is whatever is required to make the investment
look like the comparable houses (unless the plan is to sell well under
market value). I do not attempt to obtain all of the various contractor
bids when I am making offers. All the real deals would be sold before
I could ever have an offer together! Instead I have developed ranges
of rehab dollars based on the overall condition of the home.
Is it an exact science? No, but neither are the bids - there will always
be something missed. So why not work with a guide that is probably
90% accurate and allows for quick offers?
Buy/Sell/Hold costs include expenses such as appraisals, attorney fees,
title search & title insurance, loan origination fees, debt service, utilities,
insurance, taxes, real estate commissions, and closing fees paid on behalf
of the end buyer. Again, these costs vary depending on each investor's
individual situation. In the Atlanta area, 15% of the ARV seems to be a
good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.
Profit margins are the fun part of the equation. How much do you want to
make? If you're wholesaling the property, you also want to consider how
much you should leave in the deal for the investor buyer to make the deal
attractive.
That's it. That's how you calculate the most you'll pay for a property. But
that's not what you SHOULD pay. It is the maximum you'll pay. It is the
deal-breaker. You will not pay one penny over the MO. Your negotiations
should lead you as far below the MO as possible. The difference in amounts
is additional profit in your pocket. What you SHOULD pay is the minimum
price below the MO that the seller will accept.
Download my excel calculator to generate professional reports
Tuesday, January 12, 2010
Picking the sweet spot in real estate
First the housing market tanked, eventually sending home prices down 30% from their 2006 peak. Then came warnings that commercial real estate would be the next shoe to drop -- and that the problems could dwarf those in the residential market.
Lately the signs of distress have become starkly visible: Prices of commercial property such as apartment buildings, malls, and offices have fallen more than 40% over the past two years. Rents are down, and vacancies are at their highest levels in more than two decades. Meanwhile, the number of distressed-property sales is expected to rise over the next few years, keeping pressure on prices.
If you're the adventurous type, that may have you wondering whether this is a good time to add real estate securities to your portfolio. After all, wise investors look for buying opportunities in troubled markets, moving in when the herd is running scared.
The only problem: This time the herd has gotten there ahead of you. While bottom fishing may be a smart strategy for buyers of physical property, the true bargains have already been snapped up in publicly traded real estate investment trusts, which are companies that own commercial property and trade on the exchanges like stocks. And there were plenty of deals to be had:
From 2007 through the beginning of 2009, prices of REITs got pummeled, dropping more than 70%. But since March -- when Money suggested putting 10% of your stock allocation into REITs -- they've shot up 100%, according to the FTSE NAREIT index, handily beating the 60%-plus gain in the S&P 500. Sure, REITs are still 45% below their pre-melt-down days. But you can't call them bargains anymore.
Does that mean you should ditch the idea of investing in real estate altogether? Absolutely not. While you can't count on continued mammoth gains in the near term, a small stake in REITs or the mutual funds that invest in them can provide other valuable portfolio benefits.
Chief among them: diversification and generous income. And if you pick them right, you still have a decent shot at solid price appreciation down the road. The following strategies will help you put real estate in its rightful place in your portfolio.
Stake a small claim for now
The recent stunning performance of REITs and real estate funds may seem baffling given the dismal state of the commercial property market. But the possibility of impending doom had already been factored into prices by early 2009; once doom turned to mere gloom, intrepid investors began moving in.
What changed? The REIT industry made an all-out effort to raise capital, more than $30 billion in all over the past year, by issuing new equity and debt. That eased concerns that some trusts did not have enough cash to survive the downturn and put many REITs in a good position to grab prime income-producing properties at fire-sale prices.
True, there may not be quite as many deals at rock-bottom prices as once believed; banks recently have begun working with some financially troubled property owners to extend their loans rather than force them into foreclosure. "There probably won't be the once-in-a-generation type of distress we thought there would be six months ago," says Michael Knott, a senior analyst at Green Street Advisors.
Still, there should be more than enough opportunities for REITs to profit from -- or so investors clearly believe, given the tear the shares have been on lately.
Coming in on the back end of a 100% advance is far from ideal. Yet most financial advisers suggest you should have a good 5% of your portfolio in real estate now. "You always should have some money in REITs because they are a great diversifier," says Chris Cordaro, a financial adviser in Morristown, N.J.
That's because, REIT prices often move in a different direction than stocks do. Plus, their hefty dividends -- REITs pay out nearly all of their rental income to shareholders -- can provide a much-needed cushion in a roller-coaster market. Average yield on equity REITs recently: 3.9%, vs. 2.4% for dividend-paying companies in the S&P 500 and 1.7% overall.
To avoid buying at or near a peak, invest in regular intervals over the next year or two until your allocation hits that 5% mark. Already own REITs or real estate funds? You may be overweighted. If so, gradually re-balance to bring your holdings back down to 5% of your total portfolio.
Focus on the cash kings
When it comes to investing in REITs, you basically have two choices: equity REITs, which own commercial properties, or mortgage REITs, which make or own loans. With so many potentially troubled mortgages still out there, equity REITs are the better bet now. The ones poised for the best gains in the long run are those in the strongest financial position to buy distressed properties as deals come up, with lots of cash on hand and access to more, says Jack Chee, an analyst at Litman/Gregory Asset Management.
Companies that fit this profile include Simon Property Group (SPG), which owns a large portfolio of high-quality retail spaces in North America, Europe, and Asia. Its tenants sign long-term leases, so Simon hasn't been hit as hard by falling rents and rising vacancies as other companies. Plus, Simon has raised nearly $4 billion in new capital that can be used for future purchases, says Craig Guttenplan, an analyst at the research firm CreditSights.
Other good options include Boston Properties (BXP), which focuses on premier office space in big cities and has raised $1.5 billion, and Realty Income (O), which also has plenty of capital to finance acquisitions.
Go for active management
Investing in individual REITs gives you the opportunity to zero in on a specific location or a particularly promising sector of the commercial market. But that kind of concentration can be risky. A safer way to add real estate to your portfolio is to buy shares in a mutual fund that invests in many different REITs and perhaps some real estate operating companies too. That way you spread your bets among different geographical areas and property types.
You can simply buy an index fund, such as the Vanguard REIT Index (VGSIX) or the Vanguard REIT ETF (VNQ). But analyst John Coumarianos of Morningstar believes it's smarter to go with an actively managed fund that can weed out shakier companies. Among his top picks: T. Rowe Price Real Estate (TRREX), a low-cost fund (expense ratio: 0.75% vs. 1.45% for the category) that focuses on companies with high-quality properties in prime locations.
If you're looking more for growth than income, focus on funds that favor traditional real estate operating companies over REITs. An excellent example: Third Avenue Real Estate Value (TVRVX), a global fund whose manager, Michael Winer, is an expert in investing in distressed properties. One caveat: Third Avenue recently raised its fees for new investors from 1.1% to as much as 1.4%, prompting it to be dropped from the Money 70 list of top low-cost funds. But as a timely play on real estate, analysts say it's still a worthy investment.
Minimize the tax bite
Most real estate trusts and funds offer sizable dividends since REITs dole out 90% or more of their taxable income each year. You'll have to pay Uncle Sam at your ordinary income tax rate on most of those payouts. That's why it's best to hold REITs and funds in a tax-advantaged account such as your 401(k) or an IRA, says Rick Ferri, an investment adviser in Troy, Mich. About 25% of company 401(k) plans now offer real estate funds, according to the Profit Sharing/401k Council of America. Or if your plan is among the 16% that offer a brokerage account option, you can purchase REITs that way. You'll be happier come April!
www.propertyexpresscrm.com
Lately the signs of distress have become starkly visible: Prices of commercial property such as apartment buildings, malls, and offices have fallen more than 40% over the past two years. Rents are down, and vacancies are at their highest levels in more than two decades. Meanwhile, the number of distressed-property sales is expected to rise over the next few years, keeping pressure on prices.
If you're the adventurous type, that may have you wondering whether this is a good time to add real estate securities to your portfolio. After all, wise investors look for buying opportunities in troubled markets, moving in when the herd is running scared.
The only problem: This time the herd has gotten there ahead of you. While bottom fishing may be a smart strategy for buyers of physical property, the true bargains have already been snapped up in publicly traded real estate investment trusts, which are companies that own commercial property and trade on the exchanges like stocks. And there were plenty of deals to be had:
From 2007 through the beginning of 2009, prices of REITs got pummeled, dropping more than 70%. But since March -- when Money suggested putting 10% of your stock allocation into REITs -- they've shot up 100%, according to the FTSE NAREIT index, handily beating the 60%-plus gain in the S&P 500. Sure, REITs are still 45% below their pre-melt-down days. But you can't call them bargains anymore.
Does that mean you should ditch the idea of investing in real estate altogether? Absolutely not. While you can't count on continued mammoth gains in the near term, a small stake in REITs or the mutual funds that invest in them can provide other valuable portfolio benefits.
Chief among them: diversification and generous income. And if you pick them right, you still have a decent shot at solid price appreciation down the road. The following strategies will help you put real estate in its rightful place in your portfolio.
Stake a small claim for now
The recent stunning performance of REITs and real estate funds may seem baffling given the dismal state of the commercial property market. But the possibility of impending doom had already been factored into prices by early 2009; once doom turned to mere gloom, intrepid investors began moving in.
What changed? The REIT industry made an all-out effort to raise capital, more than $30 billion in all over the past year, by issuing new equity and debt. That eased concerns that some trusts did not have enough cash to survive the downturn and put many REITs in a good position to grab prime income-producing properties at fire-sale prices.
True, there may not be quite as many deals at rock-bottom prices as once believed; banks recently have begun working with some financially troubled property owners to extend their loans rather than force them into foreclosure. "There probably won't be the once-in-a-generation type of distress we thought there would be six months ago," says Michael Knott, a senior analyst at Green Street Advisors.
Still, there should be more than enough opportunities for REITs to profit from -- or so investors clearly believe, given the tear the shares have been on lately.
Coming in on the back end of a 100% advance is far from ideal. Yet most financial advisers suggest you should have a good 5% of your portfolio in real estate now. "You always should have some money in REITs because they are a great diversifier," says Chris Cordaro, a financial adviser in Morristown, N.J.
That's because, REIT prices often move in a different direction than stocks do. Plus, their hefty dividends -- REITs pay out nearly all of their rental income to shareholders -- can provide a much-needed cushion in a roller-coaster market. Average yield on equity REITs recently: 3.9%, vs. 2.4% for dividend-paying companies in the S&P 500 and 1.7% overall.
To avoid buying at or near a peak, invest in regular intervals over the next year or two until your allocation hits that 5% mark. Already own REITs or real estate funds? You may be overweighted. If so, gradually re-balance to bring your holdings back down to 5% of your total portfolio.
Focus on the cash kings
When it comes to investing in REITs, you basically have two choices: equity REITs, which own commercial properties, or mortgage REITs, which make or own loans. With so many potentially troubled mortgages still out there, equity REITs are the better bet now. The ones poised for the best gains in the long run are those in the strongest financial position to buy distressed properties as deals come up, with lots of cash on hand and access to more, says Jack Chee, an analyst at Litman/Gregory Asset Management.
Companies that fit this profile include Simon Property Group (SPG), which owns a large portfolio of high-quality retail spaces in North America, Europe, and Asia. Its tenants sign long-term leases, so Simon hasn't been hit as hard by falling rents and rising vacancies as other companies. Plus, Simon has raised nearly $4 billion in new capital that can be used for future purchases, says Craig Guttenplan, an analyst at the research firm CreditSights.
Other good options include Boston Properties (BXP), which focuses on premier office space in big cities and has raised $1.5 billion, and Realty Income (O), which also has plenty of capital to finance acquisitions.
Go for active management
Investing in individual REITs gives you the opportunity to zero in on a specific location or a particularly promising sector of the commercial market. But that kind of concentration can be risky. A safer way to add real estate to your portfolio is to buy shares in a mutual fund that invests in many different REITs and perhaps some real estate operating companies too. That way you spread your bets among different geographical areas and property types.
You can simply buy an index fund, such as the Vanguard REIT Index (VGSIX) or the Vanguard REIT ETF (VNQ). But analyst John Coumarianos of Morningstar believes it's smarter to go with an actively managed fund that can weed out shakier companies. Among his top picks: T. Rowe Price Real Estate (TRREX), a low-cost fund (expense ratio: 0.75% vs. 1.45% for the category) that focuses on companies with high-quality properties in prime locations.
If you're looking more for growth than income, focus on funds that favor traditional real estate operating companies over REITs. An excellent example: Third Avenue Real Estate Value (TVRVX), a global fund whose manager, Michael Winer, is an expert in investing in distressed properties. One caveat: Third Avenue recently raised its fees for new investors from 1.1% to as much as 1.4%, prompting it to be dropped from the Money 70 list of top low-cost funds. But as a timely play on real estate, analysts say it's still a worthy investment.
Minimize the tax bite
Most real estate trusts and funds offer sizable dividends since REITs dole out 90% or more of their taxable income each year. You'll have to pay Uncle Sam at your ordinary income tax rate on most of those payouts. That's why it's best to hold REITs and funds in a tax-advantaged account such as your 401(k) or an IRA, says Rick Ferri, an investment adviser in Troy, Mich. About 25% of company 401(k) plans now offer real estate funds, according to the Profit Sharing/401k Council of America. Or if your plan is among the 16% that offer a brokerage account option, you can purchase REITs that way. You'll be happier come April!
www.propertyexpresscrm.com
Monday, January 11, 2010
US Property Outlook
Having been an active investor in property around the US for the last decade I thought I would share some thoughts on the market based on my experience, feedback from clients, and a recent report from accountants PwC - the general conclusion is that the US commercial real estate faces a long, slow road to recovery that is more than a year away for most types of property, with Washington policy-makers increasingly pulling the strings that affect prices.
The recovery of commercial real estate is not expected to gain much traction until late 2011 or 2012, given current prospects for a lackluster economic revival in the United States and high unemployment, said the fourth-quarter Korpacz Real Estate Investor Survey.
Rental rates will continue to decline until strong, consistent job growth resumes, according to the survey. With $US1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector, the survey said.
More than 100 real estate investors were surveyed, representing the views of real estate investment trusts, pension funds, private equity firms and insurance and mortgage companies.
Eyes on Washington
Pricing in the industry will be more influenced by government and regulatory policy than by occupancy levels or rents, said Robert White, President of Real Capital Analytics.
Policy makers control what happens to commercial mortgages in default, White wrote in the report, and have encouraged loan modifications and extensions even in cases where loans are above a property's current value.
Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keeping rates low and easing restrictions on foreign capital will also influence industry prospects.
Commercial mortgage-backed securities held about 42 percent of distressed loans, US banks 31 per cent and international banks another 13 per cent, at the end of November, Real Capital Analytics said.
Tough 2010
While the report did note some signs of a possible improvement in the economy, such as improving labor trends, it showed broad expectations for continued recession in 2010 across several property types.
Investors expect the office sector to remain in recession in 2010, with a rebound the following year. A more prominent recovery is not likely until 2012.
The retail real estate sector is expected to stage a modest recovery starting in 2012, though some markets - like Fort Lauderdale, Houston and Nashville - may improve earlier, according to the survey of investors in 28 markets.
The warehouse sector, which reflects the movement of goods, will remain in recession through 2010, with some properties recovering in 2011, investors said. The apartment sector is forecast to begin recovering in 2011 and 2012.
In the national suburban office market, investors said they expect property values for suburban office product to decline an average of 8.75 per cent, as rents decline and landlords struggle to maintain occupancy levels.
Owners of downtown office properties are expected to see little relief in the coming year, as they contend with lower rents, falling tenant demand and increased supply of subleased space. Demand for central business district (CBD) space typically lags the US economy.
Investors also expect national power centers, developments anchored by major chain stores, to be one of the worst investment prospects in 2010, as the economy affects both consumers and retailers.
Although there are signs of a recovery, 2010 is a good time to review your approach to the market - there could be good investments to snap up and a good time to improve the performance of your rental portfolio.
Good luck and happy investing for 2010!
Mike Bridges
http://www.propertyexpresscrm.com/
The recovery of commercial real estate is not expected to gain much traction until late 2011 or 2012, given current prospects for a lackluster economic revival in the United States and high unemployment, said the fourth-quarter Korpacz Real Estate Investor Survey.
Rental rates will continue to decline until strong, consistent job growth resumes, according to the survey. With $US1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector, the survey said.
More than 100 real estate investors were surveyed, representing the views of real estate investment trusts, pension funds, private equity firms and insurance and mortgage companies.
Eyes on Washington
Pricing in the industry will be more influenced by government and regulatory policy than by occupancy levels or rents, said Robert White, President of Real Capital Analytics.
Policy makers control what happens to commercial mortgages in default, White wrote in the report, and have encouraged loan modifications and extensions even in cases where loans are above a property's current value.
Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keeping rates low and easing restrictions on foreign capital will also influence industry prospects.
Commercial mortgage-backed securities held about 42 percent of distressed loans, US banks 31 per cent and international banks another 13 per cent, at the end of November, Real Capital Analytics said.
Tough 2010
While the report did note some signs of a possible improvement in the economy, such as improving labor trends, it showed broad expectations for continued recession in 2010 across several property types.
Investors expect the office sector to remain in recession in 2010, with a rebound the following year. A more prominent recovery is not likely until 2012.
The retail real estate sector is expected to stage a modest recovery starting in 2012, though some markets - like Fort Lauderdale, Houston and Nashville - may improve earlier, according to the survey of investors in 28 markets.
The warehouse sector, which reflects the movement of goods, will remain in recession through 2010, with some properties recovering in 2011, investors said. The apartment sector is forecast to begin recovering in 2011 and 2012.
In the national suburban office market, investors said they expect property values for suburban office product to decline an average of 8.75 per cent, as rents decline and landlords struggle to maintain occupancy levels.
Owners of downtown office properties are expected to see little relief in the coming year, as they contend with lower rents, falling tenant demand and increased supply of subleased space. Demand for central business district (CBD) space typically lags the US economy.
Investors also expect national power centers, developments anchored by major chain stores, to be one of the worst investment prospects in 2010, as the economy affects both consumers and retailers.
Although there are signs of a recovery, 2010 is a good time to review your approach to the market - there could be good investments to snap up and a good time to improve the performance of your rental portfolio.
Good luck and happy investing for 2010!
Mike Bridges
http://www.propertyexpresscrm.com/
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