Investing in Apartment Buildings

The 10-Minute Offer for Apartment Buildings

This ebook teaches you the proven and tested system for making offers on apartment buildings and getting the deal in no time at all! You will control the entire process, and you will learn every detail that you need to clear. You will learn the tips and tricks for working with brokers and how to make sure that the deal falls completely in your favor. Investing in apartment buildings has the potential to be one of the most lucrative businesses that you get in to, because the right building can turning huge amounts of profit without having to spend too much time working for that money. With this ebook, you can get started on the right foot by making sure that you get the deal with plenty of money left to spare. You will cut the deal of a lifetime in 10 minutes or less. It doesn't have to take much time at all to make money! Continue reading...

The 10Minute Offer for Apartment Buildings Summary


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Author: Michael Blank
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My The 10Minute Offer for Apartment Buildings Review

Highly Recommended

I've really worked on the chapters in this ebook and can only say that if you put in the time you will never revert back to your old methods.

All the modules inside this book are very detailed and explanatory, there is nothing as comprehensive as this guide.

Earn Over 100 Percent On Your Money Tax Free

Everyone knows that if something sounds too good to be true, it probably isn't. And they are usually right. But when it comes to real estate investing, they are absolutely wrong. I am a real estate investor specializing in wholesale properties, and I'd like to show you how you can earn 100 percent on your money tax-free. Let me tell you about two properties I discovered in the last thirty days right here in St. Louis Property No.1 In the paper I located a four-unit apartment building being sold to settle a divorce. The value was 48,000. I offered 23,500, all cash, in thirty days (I needed at least four weeks to arrange financing). Another investor bid 18,500 cash immediately. Because he had cash, his offer was accepted over mine. The property sold for less than fifty cents on the dollar What will this lucky investor do with the property If I were him, I'd obtain a new first mortgage of 25,000. This would return his original investment and leave him with an extra 6,500 cash profit...

Business structure Insurance

Insurance generally has insufficient limits to protect you in case of a lawsuit. In our lawsuit-happy culture, this is becoming a growing problem for real estate owners. If someone slips and falls and a jury determines that you, as landlord, were negligent in some way, you might get hit with a huge judgment. With a judgment in hand, the litigant (the person who sued you) can take your apartment building, your other property, and even your personal residence. Let's use an example of someone who has a home with a 150,000 mortgage. The house is currently worth 180,000, so there is 30,000 worth of equity. But, our homeowner is worried about losing his job and so he makes the decision to start paying extra money on the note. Each month he pays an extra 1,000 toward the note balance. The mortgage balance keeps going down as his equity grows. And then, a few years later, the If he had completely paid the house off and had it free and clear, he would lose the risk from foreclosure, but he...

Are Rent Collections Dependable

To verify what I say, review your local rental housing market. Can you find any well-located, well-kept houses or (competently managed) small apartment buildings that remain available for rent for any lingering period of time Probably not, if they're priced and promoted effectively. Except in isolated cases, smaller residential rentals typically suffer vacancy and collection losses of less than 5 percent per year.

Homeowners Too Can Use This Method

Even if you own a home, you should weigh the advantages of owner-occupied financing to acquire your next several properties. Here's how Locate a property (condo, house, two- to four-unit apartment building) that you can buy and move into. Find a good tenant for your current home. Complete the financing on your new property and move into it. If you like your current home, at the end of one

Appraisal How To Discover Great Properties

With the knowledge from Chapter 2, you can now figure out a way to finance real estate. But to buy profitably, you must value property accurately. In the past, many real estate investors, to their regret, lost sight of this critical point. Even today most popular how-to books on real estate investing give short shrift to valuing properties. Why Because many authors and investors mistakenly believe that inflation cures all mistakes. Naively, many people think that to make money in real estate, all you have to do is buy it. Even if you pay too much, rising prices will eventually bail you out. Here's what David Schumacher has written I bought a four-unit apartment building for 35,000. Suppose I had paid 100,000 for it. It wouldn't have made any difference because the property's worth 1.2 million today. (The Buy and Hold Real Estate Strategy, Wiley, 1992)1 agrees to sell on easy terms (usually little or nothing down), the buyer will agree to the seller's price. Who cares about the price...

Estimating Capitalization Rates R

After figuring NOI, you next decide what capitalization rate (R) to use. When you buy a rental property, you're actually paying now for the right to receive rents over the next 20, 30, or 40 years (or for however long you plan to own the property). The question becomes how much these future rents are worth in today's dollars (i.e., the property's market value). If the appropriate capitalization rate is 8.5 percent, then the market (capital) value of this eight-unit apartment building equals 554,365

On one condition or a few Changing terms for rental sale or services

A landlord or owner is prohibited from changing the terms or conditions of a rental or sale of a property for different tenants or buyers as a way to discriminate. Here's an example I use in my classes You own an apartment building and have extensively researched damages commonly done by various types of individuals and developed a detailed schedule of security payments based on race, family status (with children, or not), and marital status. Is this activity legal or not Emphatically, not Even though you supposedly have objective data and probably claim that you're not using this activity to discriminate but rather only to protect yourself, it nevertheless is viewed as discrimination.

Drive Guide The Building

The multifamily asset class includes everything from small duplex apartment buildings to entire apartment complexes with eight hundred units or more. The biggest risk in this asset class is oversupply because when people have lots of choices, rents can fall, affecting your property's operating performance and cash flow. Another risk with multifamily is that when interest rates are low, more people can afford to buy homes, so they don't have to rent. That leaves more apartment units vacant and competing for fewer residents. But on the plus side, when lending gets tighter and it becomes harder to qualify for a home mortgage, renting becomes the only option, and the demand for apartment homes increases. Investors have made a lot of money in this area of commercial real estate by buying right and managing efficiently. Like all commercial real estate, the value of a multifamily property increases based on increased operating performance. In other words, buying a property and then managing...

Arrange Alternative Terms of Financing

As explained in Chapter 2, smart investors think through their financing alternatives. It's amazing how you can improve cash flows by reworking the cost or terms of the financing. In the first pass through the numbers for this eight-unit apartment building, we assumed a 7.5 percent interest rate amortized over 25 years with a 20 percent down payment. To improve the cash flows, you could do the following Now let's return to the first calculation, where you borrowed mortgage money from a bank at 7.5 percent interest with a 25-year term. Say the sellers won't carry back the entire amount of the financing but will give you a 100,000 balloon second mortgage due in five years, with interest only payable at 6 percent. You borrow 335,492 from the bank on its terms, and 100,000 from the sellers on their terms. Here's what your cash flow would look like under this financing arrangement.

Numbers Change Principles Remain

Previous discussions focus on the cash flows of an eight-unit apartment building with a variety of interest rates, loan balances, amortization periods, cap rates, and purchase prices. The numbers used in these examples illustrate techniques and principles not the specific numbers you should apply in your market or for your investment goals. When you buy condos, single-family houses, or small apartment buildings, search throughout your local area. Look at properties. Talk to well-informed realty agents, mortgage loan officers, real estate appraisers, property managers, and real estate investors.

When You Have Renters

When you are a landlord of an apartment building, retail location or office building, you are facing greater risks than you do in your own home. There is the danger that a renter or a renter's guest will get injured and sue you, possibly claiming that some physical defect in your building caused the injury. An additional danger is that a fire or a leak will cause damage to rental property, and you will be held liable. If you own multiple rental properties, speak with an insurance agent about the possibility of obtaining a blanket policy that covers them all. This can save a great deal of money, especially at those critical times when you are adding a second or third rental property to your portfolio.

Or What have you been smoking

He had worked hard and paid his taxes. He owned a twenty-unit Roseville apartment building free and clear and a significant brokerage account. He felt as if he were doing well, but the combination of the malpractice and real estate litigation explosion and the ravenous demands of both the IRS and California's notorious state tax collector the Franchise Tax Board had led John down the path of considering offshore options. The promoter indicated that John would not have to pay any taxes. Because the apartment building LLC was owned by the Nevis APT ( asset protection trust ), profits generated from rents could pass offshore without taxes. The domestic LLC would simply file zero return. The promoter further stated that insurance was not needed on the apartment building because it was now in a bulletproof structure. As well, by moving John's significant brokerage account into the second APT, profits could be generated offshore without U.S. or California...

Real Life Story Johns Bad

John followed the promoter's advice, paid the 25,000 for setting it all up, and in the first year his financial condition greatly improved. With his assets offshore and no onshore taxes paid, he was doing really well. He wondered why everyone didn't do this. Then, in one day, two problems arose. He was sued for malpractice by a patient and a tenant fell at the apartment building. The lawyer laughed and said John needed to get a local attorney to advise him. When John did so he learned the bitter truth You can't protect U.S. real estate with offshore entities. The apartment building was located in California and, as such, California courts had jurisdiction. This was the law in all fifty states. The tenant could bring a claim against the LLC, and with no insurance in place, the tenant could reach the entire free-and-clear equity in the apartment building. The fact that the LLC was owned by an offshore APT was of absolutely no consequence and offered zero protection.

Who do you trust Ownership in trust

Say, for example, you leave your apartment buildings to your brother in trust for your favorite nephew. You are the trustor, because you created the trust. Your brother is the trustee, and he administers the buildings according to the terms of the trust, which usually requires the income from the buildings to go to your nephew. Your nephew is the beneficiary.

Perseverance Paysand Keeps On Paying

Shortly after closing that deal, he found a 16-unit apartment building but had to go to nine different lenders before he found one willing to make the loan. This just goes to show that when one says no, just move on to the next one, he says. Don't take it personally just move on. And don't let other people stand in the way of your dreams. Juan has since bought a number of other properties, including one 6-unit, two 8-unit, and one 12-unit apartment buildings. Currently, he owns 52 rentals worth more than 1 million that generate a positive cash flow of 6,400 per month. This is all I have done for now, but I am not finished by a long shot, he says. There are still plenty of other strategies I have not tried.

TIP Dont worry too much about appearing weak because you have taken the initiative to settle Only a fool would not want

Several years ago I represented the developer of the only large, new oceanfront hotel developed in Waikiki over the past twenty years. The owners and residents of the condominium apartment building across the street had opposed his project from the beginning through their association of apartment owners. They had contested the shoreline permit required for any oceanfront development in Nevertheless, I started negotiations with the lawyer on the other side for my client to make a cash payment to the condo association in exchange for dropping its opposition to the variances. The association finally agreed to accept 150,000 to drop the case. My client refused, even though this case could sabotage his 100 million hotel project if he lost. He was also infuriated with me for wasting time and showing weakness by negotiating with his enemies. He told me to stop dealing with them and just wait for the judge's favorable decision. I got the judge to postpone his decision and continued to...

Matching Market Needs with Product Creation

Just because you buy a hotel doesn't mean it has to stay a traditional hotel. Just because you buy an apartment building doesn't mean it needs to stay an apartment building. Markets change, market needs change, and in order to be successful, you may find you have to change a property from one kind of product to another. Here are a few examples

Property Criteria and Analysis

Leverage simply means that you want as little of your money as possible used to secure the biggest opportunity possible. The less money you have to invest in a property, in other words, the larger the opportunity for a big payoff. When analyzing a property, know exactly what you will initially need to invest. A key to building my real estate fortune over the years has been cash flow. We call cash flow king because having cash is always our primary objective. Positive cash flow creates and maintains your investment's momentum. It also has significant financing and lending implications. For example, when purchasing an apartment building containing more than five units, the bank will base the amount it will lend you on the building's cash flow abilities. (Your credit score is secondary.) Cash flow also is a significant factor in the building's overall value. A building with poor cash flow will appraise much lower than another comparable building in the same area that has a stronger cash...

Use Home Equity and Personal Loans to Build Your Wealth

If you own real estate now you can borrow against your equity in it and use the money to buy income real estate. This technique of creative financing is used again and again by real estate BWBs. Here's a letter from a reader showing this method at work I currently own a 4-unit apartment building bought with 100 financing using a home equity loan for the down payment and settlement costs. I am using your principles which you give in How to Make Big Money in Real Estate. Delaware There is good news for you about home equity loans and creative financing. When you apply for a home equity loan you never need tell the lender what you plan to use the loan money for. So you can buy as many properties as you can afford using a home equity loan. With a personal loan you must tell what you intend to use the money for. Acceptable uses include education, vacation, home improvement, debt consolidation, medical, dental, miscellaneous, and others. Unacceptable uses include for certain lenders home or...

Condominium Conversion

To convert an apartment building into individual condominium units, purchase the apartments inexpensively enough so that each unit will easily convert to a saleable condo. Because of legal procedures and incidental costs to convert, not to mention the time and effort, as much as a 1.5 to 2.0 rule of thumb is sometimes required. In other words, to earn a good profit, a 100,000 rental unit might have to sell for 150,000 to 200,000 as a condo. Conversions require a large price markup to cover marketing, renovation, and legal costs, plus the risk necessary to make such a conversion. Notwithstanding these financial realities, last year nationwide investors converted more than 250,000 rental apartments into condo units. submit plans that show how you intend to make the conversion. Should the city consider your plans adequate, it will approve the conversion. If not, certain changes, such as additional parking or bathrooms, may be needed before you get permission from the city. Planners may...

Mixed Use Real Estate Analysis

The analysis of mixed-use projects is complex because added dimensions of markets are included additionally, mixed use may have many varying aspects. In the mid-twentieth century era of development (notably since the 1970s) mixed use was the favored planning format in many towns and cities. Older urban areas had seen mixed use over many years. For example, in San Francisco residential neighborhoods of the 1950s and 1960s, it was not uncommon for a family to live above the store, or for service stations to coexist on the same block with schools and apartment buildings.

Capitalizing the income

Another method for appraising real estate based on its income is known as the income capitalization approach. Like the GRM and GIM, this method converts the income of a property into an estimate of its value. Appraisers generally use this method for commercial buildings such as shopping centers, office buildings, and large apartment buildings. The basic formula for this approach, commonly referred to as IRV, is Building expenses fall into three categories fixed, variable, and reserves. Fixed expenses are expenses that don't change with the occupancy of the building, like property taxes and insurance. Variable expenses are pretty much all other expenses, some of which may vary with the occupancy of the building. These expenses include snow removal, utilities, management fees, and so on. Reserves, sometimes called reserves for replacements, are funds that renters put aside for items that have to be periodically replaced but not on an annual basis. Cooking stoves in an apartment are an...

Types of Commercial Properties

Your own background and interests will have a major influence on what type of commercial property you choose. Many of my students have already owned businesses, so they have experience as commercial tenants and naturally gravitate toward the type of property with which they are familiar. If you're not sure where to start, I would recommend a small apartment building, a small office building, or a building with retail on the ground floor and some apartments above. From both purchase process and management perspectives, these types of buildings are not substantially different from single-family or one-unit to four-unit residential properties. Get a few of those under your belt, and you'll be ready for bigger deals.

Look for the Unusual Offer

Then he bought a condo apartment building for zero-cash down because the seller had the financing in place. Just finished reading 'How to Make Big Money in Real Estate.' I own two businesses. Am active in one as manager accountant owner. I manage the following real estate, which I also own

Craig Wilsons Profit Boosting Market Strategy

To see strategy in action, follow the experience of Craig Wilson. Craig bought an undermanaged eight-unit apartment building located within one mile of a small college. Craig felt that he should direct his marketing efforts toward college students. The Callbacks. After these property inspections, Craig ranked each of the properties according to its appeal. Then he buttressed his impressions with market feedback. To learn how quickly (or slowly) each unit rented, he periodically checked back during the following month with each owner manager to see which units remained on the market. This information added to his store of knowledge about tenant likes and dislikes. It also helped him decide which units the market rejected as too much money, or perhaps, inferior in features.

Step No 4 Due Dili Gence

A very small percentage of properties may have mortgages held by a bank now administered by the Federal Deposit Insurance Corporation (FDIC). When a bank fails due to insolvency (i.e., not enough money), any loans owed to the bank are administered by the FDIC. If a loan administered by the FDIC is attached to a property on your list, it could mean delays during the foreclosure. The good news is that it is easy to check for FDIC-held loans. With a few simple steps, the risk of a delayed foreclosure due to an FDIC-administered lien is quite remote and easily avoidable. Several risks can arise due to the lien itself. These are risks that typically involve litigation costs or delays in the foreclosure process that increase the cost of ownership. They can arise because of disputes over property ownership, disposition of other liens, and getting clear title to the property after foreclosure. In addition, there is the risk of too much success. How is that What if you successfully acquire a...

TIP Lesson Learned When it comes to a singletenant commercial property not only is the buyer concerned about the

Fitness clubs, in general, at the time were not considered grade-A tenants simply because of the number of clubs that had gone out of business throughout the years. The industry as a whole had a lower ranking when seen through the eyes of a lender because they were viewed as a higher-risk tenant. Because of this, the lender required an even greater down payment than an apartment building lender might require. So not only did I not have the money for the typical

TlP Lesson Learned Sometimes the pieces have to come together and you just cant force that You must wait patiently

For example, my friend Ken McElroy, who is Robert's and my investment partner on several apartment buildings, said to me about two years before this current economical disaster came to be, Kim, get ready for the market to turn. Housing prices are about to come down. Why do you say that I asked.

Band Of Investment Cap Rates

Let's look at a situation in which a lender has mortgage applications on two different four-unit apartment buildings, property A' and property B', that are right next to each other. They were built in the same year by the same builder. The units within the buildings are the same size, and they generate the same amount of rent per month. The lender finds the credit score and hence the creditworthiness of borrower A to be better than that of borrower B. The lender decides that the risk of default is greater for borrower B than it is for borrower and A, and as a result will charge a 1 2 greater interest rate on the mortgage to compensate for the additional risk. The mortgage to be obtained is an 80 L V mortgage amortized over 30 years. Borrower A will get the mortgage at a 7.5 rate of interest, and borrower B will pay 8 interest. Both buildings will generate 26,000 of NOI next year, and investors in this type of building are expecting a 12 ROE. What is the impact of the additional...

Rule No 1 Hold for Investment

You could also buy an office building, an apartment building, a warehouse, or bare land. We have clients who sell bare land, which is not income producing, and then buy rental properties, such as apartment buildings, which do produce income. In other words, they use an exchange to create cash flow. We also have clients who sell one income-producing property and buy another in order to increase their cash flow, and we have some who sell income-producing properties, generally apartment buildings, and buy bare land in order to get out of the hassles of managing their property they use an exchange to simplify their lives.

Commercial Properties

But, individual investors now realize that in today's real estate market, many commercial properties offer lower prices and higher yields (i.e., higher cap rates, higher cash on cash returns) than houses, condominiums, and small apartment buildings. Read through the sampling of for sale office and retail from around the country (Figure 15.2).

Maximize Your Leverage With Owneroccupancy Financing

By far the easiest, safest, surest, and lowest-cost way to borrow all (or nearly all) of the money you need to buy a property involves owner-occupied mortgage financing. Numerous high-LTV (loan-to-value) owner-occupied loan programs are readily available on single-family homes, condominiums, townhouses, and two- to four-unit apartment buildings that offer 95, 97, or even 100 percent financing. With sterling credit, some lenders will even lend you 125 percent of an owner-occupied property's purchase price. In contrast, if you do not qualify for owner-occupied financing (i.e., you choose not to live in the property), most lenders (banks, mort

Great Northwest Land Company

It cost Joey ten months of effort and a great deal of money to set up his own business. While at Hendricks, part of his compensation had been a percentage interest in each of the deals in which he had a significant involvement. A consequence of his leaving was loss of value of his interest in ongoing projects. He sold his interest in one deal for 30,000 (a fraction of the actual value of his share) so he would have money to live on his first year. In addition, each of his partners put up 25,000 in working capital for furniture, a car for his construction manager, deposits on land, etc. Guilford Green, patterned on Sherwood Forest, was the first project begun by Great Northwest. It was located in Old Town Alexandria, and consisted of thirty-two sale units. Four 1,800 square foot units were new construction, and twenty-eight were 1,500 square foot renovated units. The latter were constructed out of four-unit apartment buildings, partitioned in the middle to form townhouses. This project...

Real Life Story Carletons Success Story No

When I first started in this business as a real estate agent, my first listing was an apartment building. I kept wondering why it had not sold. It seemed like such a good investing opportunity. One of the seminars I had attended had focused on the benefits of partnership investing accomplishing with others what you cannot do by yourself. I had learned some very effective techniques from the instructor who had a solid background in forming syndicates or partner groups, so I decided to acquire the building. I put together a partnership that consisted of two investors who contributed 100 percent of the required cash down payment, with the seller financing an 80 percent first mortgage. I contributed my expertise, and we were off to a profitable start and, I might add the beginning of a career that has spanned more than four decades.

The Search

One thing quickly became clear it was going to be difficult for Jeff and Mary to buy an already operational apartment property. The reasons for this were that the apartment layouts generally did not satisfy their personal requirements, and the prices were generally too high for them. A four-unit apartment building, for example, grossed perhaps 2,000 per month or 24,000 per year in rental income. From this were deducted such ex Jeff and Mary were shown apartment buildings which could be converted into condominiums, but none had what they considered a suitable unit for themselves. They concluded that they could not readily add value to a property that was already operating efficiently. They could best create value in a project by being patient and buying from an anxious seller at a discount price or seeing physical potential in a property where others could not. They could also contribute sweat equity by participating in the design, construction and management of the project and by...


A strong real estate accountant will understand the effect of changes in deal structure on the various tax attributes such as amortization, depreciation, and losses (which are inevitable during a construction phase since no money is being generated during the development and construction of the project). Additionally, a real estate accountant will know when it is in your best interest to obtain a cost segregation study to identify the component parts of the building(s) so as to allow for an accurate and possibly accelerated application of amortization and depreciation. Good architect partners understand that while they may have the ability to turn a property into a project that provides accolades and acclaim, the project objectives may dictate otherwise. The project may require the architect make minor modifications that deliver big results. They are not exciting modifications, and they are often not very dramatic. They may not even be all that rewarding to do, but sometimes that's...

The Income Approach

To calculate market value using the GRM, you need to know the monthly rents and sales prices of similar houses or apartment buildings. You learn of the following sales of rental houses (1) 214 Jackson was rented at 1,045 a month and sold for 148,200 (2) 312 Lincoln was rented at 963 a month and sold for 156,000 and (3) 107 Adams was rented at 1,155 a month and sold for 168,400. With this information, you can calculate a range of GRMs for this neighborhood

Property Insurance

Property insurance can protect you in other ways too, serving as a defense against claims made against you as the owner of real estate. If a tenant loses all her furniture because a pipe bursts in a ceiling over her apartment, for example, or if she falls down and breaks an ankle in the lobby of your apartment building, your insurance will pay some or all of any judgments made against you. It also helps cover the costs of mounting your legal defense. Lawyers can be very expensive.

Income Properties

Many seller disclosure laws apply only to one- to four-family owner-occupied properties. If you're buying an apartment building or shopping center, the law may not require the seller to fill out a disclosure statement. If, in this situation, the seller refuses, offset this additional risk by scaling down the top price you're willing to pay and enhance the rigor of your prepurchase inspections.

Physical Review

During the physical review, you and your team inspect the property to see if it falls in line with your business plan and your expectations. Let me expand a bit on this. As an example, let's say that you are planning to buy an apartment building and then do some slight renovations to the units that will allow you to increase the rents over the next couple of years. So how does the process start Here's my story I was financing an acquisition of a large apartment building in Scottsdale, Arizona, that had been grossly undermanaged. My client was going to buy the asset and renovate the units and gradually raise rents. He thought the quoted street rents for this property were below market for the submarket and felt he could increase them once he renovated the exterior, improved the amenities, and did some minor interior work.

Fix Flip Profit

Several years back, as California was heading into a deep recession, Pat Williams and her husband split up. Out of work and with two children to support, Pat needed to make some money quickly. She decided to invest in real estate. Given the deteriorating economy of the Golden State at the time, you might think that Pat was off her rocker. Not at all Pat knew how to capitalize on adversity. Would you like to earn an extra 20,000, 40,000, or more during the next year or two Would you like to create instant equity and boost your potential rental income Then buy a bargain-priced fixer-upper. Locate a property that offers great promise for improvement. Don't worry about whether you personally like or dislike the property's features. Just find a house, condo, or apartment building that you can buy low, create value, boost rents, and sell high. (Also, see the value-creating example of Craig Wilson in Chapter 11.)

Discounted Cash Flow

Value of money, an investor will only pay the present value of all cash flows to be received, discounted at the required rate of return. The process follows financial theory that states that the value of a share of stock is equal to the present value of the expected dividends over a projected holding period plus the present value of the future sale price of that share of stock. To get a feeling for how DCF works, let's take a look at a sample problem. An investor is considering the purchase of a 12-unit apartment building where each unit is currently renting for 1,250 per month. Rents are expected to increase by 3 per year. The building has a vacancy rate of 5 , and that is expected to remain constant over the near future. The operating expenses for the coming year are expected to be 68,400, and they are expected to increase at the rate of 2 per year. In five years the anticipated going out cap rate, which is the cap rate expected in the market in five years when the building is...

Do You Feel Lucky

Some companies will be better suited for large properties others will be a perfect fit for smaller properties. The point is that, even if you do find a good management company, they might not be good for you and your needs. You wouldn't want to hire a large property management company that specializes in large apartment buildings to manage your duplex. They might be awesome at what they do, but your property would get lost in the fold it would be too small for them to give it full attention. On the other hand, a smaller, local property management company would jump at the chance to manage your asset, and they would give you personalized service and attention. 4. You get what you pay for. Too often, people want to save money, and they balk at the fees a management company charges. Don't. Management fees vary by market and property type and size. But I will say that if a fee looks too good to be true, it probably is. Every investment in the world, if it is...

Highest and best use

You can't build an airport on a two-acre piece of property. In fact, you can't build a regional shopping center either. But you can build a house or apartment building or hotel or store or office building. Economically feasible. Depending on the market conditions at the time, you may find that one or the other of the physically possible and legally permitted uses isn't economically feasible, which means that you won't make money on that use.

Example 111

Let's use a single example to illustrate the cash flow analysis in the chapter. I refer to this single example, or problem, throughout the entire chapter. Our ultimate goal in this analysis is to calculate the after-tax cash flow from operations. Let's take a nine-unit apartment building with each unit renting for 1,175 per month. The building and the market are both experiencing a 7 vacancy rate. Operating expenses are expected to be 47,000 next year. The building can be purchased for 835,500 with an 80 L V mortgage amortized over 20 years at a 7 interest rate

Master Leases

As you can see from this example, a master lease (i.e., essentially a management contract) with option to buy can create significant profit opportunities for investor-entrepreneurs who will work to turn a poorly managed, run-down property into an attractive, effectively operated apartment building.

Classes of Property

Residential property is, as its name suggests, property that people use primarily for residential accommodation. It therefore includes freestanding homes, duplexes, condominiums, apartments, town houses, and apartment buildings. If you have an old commercial building that has been modified for Some banks classify apartment buildings as commercial property, but I want to differentiate them on the basis of whether you have residential tenants, for reasons that I explain below.

Default Clause

A party who breaches a real estate contract may be held liable for either compensatory damages or liquidated damages. In theory, compensatory damages are supposed to make the innocent party financially whole. Such damages measure the economic loss you've suffered because the other party didn't live up to his or her part of the bargain. Translating the theory of compensatory damages into an actual dollar amount is subject to legal argument. Because of indefinite calculation, no one can predict how much money a jury might award, or whether an appellate court will uphold that amount. To avoid this legal wrangling over how much you (or the sellers) lost because of the other party's breach, some contracts specify an amount called liquidated damages. For example, in case of buyer default, some real estate contracts permit sellers to keep the earnest money deposit as liquidated damages. I won't go into all the specific pros and cons of compensatory versus liquidated damages. But as...


This cash flow analysis can be used to analyze a single-family house, a four-unit apartment building, a 5,000-unit apartment complex, or a 50-story office building. The analysis does not change. The cash flows become a little more challenging, but the analysis is the same. The entire analysis may be put into an Excel spreadsheet, and the amount of work and the number of calculations that must be done by hand are both greatly reduced. There are also canned software packages that can be purchased to streamline the process. Once you understand what is happening in this chapter, your ability to choose good investment properties should improve dramatically. The level of sophistication that you choose to use in your analysis is entirely your decision. You can use a pad of paper and a financial calculator, you can create an Excel spreadsheet, or you can invest in expensive software programs. In any event you will need to know the difference between before-tax cash flows and after-tax cash...


Sarah and her partner, Jeanne, bought and renovated an apartment building ten years ago. When they were buying it, an inspector found asbestos covering many of the pipes in the old heating plant in the basement and said that it needed to be removed. Jeanne met with an asbestos-removal company, which said it would cost 25,000 to remove the asbestos and file all the appropriate paperwork and permits. When Jeanne turned pale after hearing that estimate, the abatement company offered an alternative they could simply remove the asbestos for less than half that amount of money and nobody would be the wiser. Jeanne agreed without telling Sarah. But now one of their tenants has developed lung cancer and is asking questions about whether she might have been exposed to asbestos. Spurred by that, Jeanne has finally leveled with Sarah about her lapse of judgment about getting the asbestos removed. It could become the kind of problem that costs them both a fortune and destroys their reputations as...

Now What

Time I spent on this deal only to wind up with nothing, when there were probably several other investments I could have been pursuing. I picked up the pile of pro formas, each with a description and some financial information on a property, and I started to look through them. Most of the properties were apartment buildings since that is primarily what I invest in, and the brokers I dealt with knew what I was looking for.

Final Exam

You've decided to go to graduate school, and you've calculated that you will need 8,500 per year for each of the three years you expect to be there. If you intend to enroll five years from today, given an interest rate of 9 , how much money should you set aside today 21. Denny took a listing on a four-unit apartment building with a list price of 425,000. The property sold for 95 of the list price. The net proceeds to the seller were 375,487 after the commission was paid. What was the commission rate charged on the sale of the four-unit building 24. How much money do you have to invest today in order to be able to spend 500 in two years and 700 in four years if you can earn 10 on your investment

Net Operating Income

Investors define net operating income as annual gross potential rental income from a property less vacancy and collection losses, operating expenses, replacement reserves, property taxes, and property and liability insurance. Here's how a net income statement might look for an eight-unit apartment building where each unit rents for 725 a month 7. Licenses and permit fees. Apartment building owners must sometimes pay for business licenses and other fees. For this property, the owner pays a rental property registration fee.

Quiz for Chapter

A 12-unit apartment building, with half the units renting for 1,050 per month and the other half of the units renting for 1,100 per month, is being appraised. The building is experiencing a 7 vacancy rate, and the operating expenses are expected to be 57,600 for the coming year. Using the table provided, calculate the building's net operating income (NOI).

Official Download Page The 10-Minute Offer for Apartment Buildings

The legit version of The 10-Minute Offer for Apartment Buildings is not distributed through other stores. An email with the special link to download the ebook will be sent to you if you ordered this version.

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