Before And After The Storm

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No matter where you live, winter storms can wreak havoc on property. Taking action before and after storms can reduce the chances of serious damage to homes and lives.

Before the storm

  • Outdoor furniture, grills, toys, birdbaths and the like should be stored away. Secure and anchor large objects such as prefab sheds and play structures.
  • Trees can look like they’re in good shape, but may be diseased or have other problems that can cause them to fail unexpectedly. Trees stressed by drought or rooted in saturated soil can be more susceptible to problems when storms hit.
  • Local ordinances may require that trees be trimmed a minimum distance from driveways, structures and power lines. For safety’s sake, a qualified professional should perform this work.
  • Use binoculars to check your roof for missing or damaged shingles. Flying shingles can damage structures, while missing shingles can allow water to leak into the home. Any roofing repairs should be done by licensed professionals to ensure the work is done safely and correctly.

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Holiday Poetry

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You and I both know that you aren’t gonna be reading and digesting a long business article at this time of year, so we’ll keep it light this week.

Don’t ask me why, but I have, over the years, accumulated an enormous amount of real estate poetry. The muse usually strikes me around Christmas time, which explains the “Night Before Christmas Meets Dr. Seuss” nature of a lot of this. Anyway, it amuses me—hopefully, it will give you a little smile, too.

Ode to Holyoke Lane by Vena Jones-Cox

‘Tis the night before Christmas

And I bring a tale

Of five hard-learned lessons

From one little sale.

 

It’s a story of heartache,

Of trouble, of loss,

Of hassle and torment

And headache and cost

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I Can’t Said the Ant. But He’s a Brainless Arthropod. What’s Your Excuse

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When I was 2 or 3 years old, my mother took me on trips to the library almost every week. While she checked out the latest mystery novels, I always went to the same shelf in the children’s section and pulled down the same worn, tea-colored book called “I Can’t, Said the Ant.” I must have made my mom check that book out 50 times. I had every word memorized, every illustration emblazoned on my brain, and every character befriended in my daydreams.

In case you missed out on this epic, the basic plot is that a teapot falls off the counter and breaks its spout, and if it isn’t put back up, it will die some horrible teapot death. All of the denizens of the kitchen—from the dinner bell to the pie to the pot—beg the (oddly, single) ant in the kitchen to get the teapot back to the counter and repair the broken spout.

Much rhyming ensues (“I can’t bear it, said the carrot” is one that still sticks with me), and ultimately, the ant, who initially, as you might guess from the title, doesn’t see how he can manage it, rounds up a work crew of insects and rescues the unlucky teapot from
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How to determine the Net Operating Income (NOI) of an Apartment Complex.

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There are 3 figures that go hand-in-hand when trying to determine a commercial/apartment property's value. They are; Net Operating Income (NOI), Cap Rate (CR) and Asking Price or Purchase Price (PP). If you know 2 of the figures you can always figure out the third.

I will be talking about the NOI of a property. More specifically, how NOI is calculated as it relates to an apartment building.

We are going to start with a simplified version of how to arrive at the NOI of a property and then expand each category. Basically, the formula is: Income -Expenses (other than debt service) = Net Operating Income.

INCOME:

First thing, I determine the income generated by the property. I start with the Gross Potential Rental Income (GPI) or Scheduled Gross Rental Income (SGI). Both terms are used interchangeably within the industry. The GPI assumes that all apartments (100%) are rented at full market value even if some are actually vacant or discounted.


For our example, I will use a 30 unit apartment building that has all 2 bedroom, 1 bathroom units with market rents of $600 per month each. Th
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How to Enjoy the Real Estate Game

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As you can imagine, I meet a LOT of real estate entrepreneurs every year.

And something that I’ve noticed about many of you, including newbies and old pros, is an energy you give off that I can only describe as clenched-upness.

Even folks who are excited, on the surface, about starting or expanding their real estate businesses are often simultaneously radiating a sort of anxiety about the whole thing.

Yes, I understand that what I (and your sellers and buyers and private lenders, by the way) am really feeling is your underlying fear.

Whether it’s a fear that you’re being sold a bill of goods by all the folks (like myself) who tell you that there’s unimaginable money in real estate, or a fear that it works but you can’t do it, or a fear that you WILL succeed and then be judged because you have money and your friends and family don’t, it’s definitely there—at least in most people that I meet.

But there are others, and some of them ARE brand new, who are JUST excited, because (sometimes in the face of all evide
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A System and Discipline

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I remember when I attended my first seminar back in the 80’s the speaker said you have to have a system and discipline. I knew what the system was because he was teaching it. But I did not know what the discipline was until I began to apply the system. The discipline is that you have to take the action to make the system work properly. Through months and years of trial and error, I now know what he meant by discipline. I had to discipline myself to always take action, even when I didn’t feel like it. Despite all the easier softer ways of doing things today, I still sometimes don’t feel like it. But I force myself to take action.

Many years ago, I found something on the internet that I printed and framed and it is on my office wall. It’s called, the “7 Excuses”.  I can’t do it, I’m not feeling it right now, I’m too busy, I’m too tired, There’s no guarantee it’s going to work, I’m not good enough, and my luck sucks. I still to this day do not know who the author is, but I read that from time to time to keep me motivated. I always check to see if I’m making excuses. Let’s break it down.

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Is Your Title Company Overcharging You for Your Closing?

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As a hard money lender, I see a lot of closing statements (aka HUDs) from many title companies. I’ve noticed an annoying trend that is also disturbing.

When lending money to a real estate investor, I send the title company my very detailed and specific lender requirements – one of those being a basic Lender’s Title Insurance policy from a well-rated underwriting company. In most cases, I do not require additional Insurance endorsements, and I never require a closing protection letter.

In fact, part of my title order says: “Do not add endorsements unless specifically requested. Do not issue a closing protection letter.” Yet, several title companies still try to include them. Sometimes, many of them.

Like this one, from an actual preliminary HUD:

  • Closing/Settlement Fee to [xxxxxxx]  Title & Escrow Co. $295.00
  • Courier/Shipping & Handling to [xxxxxxx]  Title & Escrow Co., $25.00
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What are the things to avoid in Making Deals?

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Let’s face it: making deals complicates our lives.  

When we first become involved in real estate, buying a property can be very anxiety-provoking: I mean, really, even though we’ve done all our due diligence and run the numbers 15 different ways and talked to our favorite mentor about it and it STILL looks like a great deal, how do we ever REALLY know? And this leads to self-esteem problems, as we’re constantly second-guessing ourselves and berating ourselves over our lack of confidence. 

And even for seasoned investors, taking on a new deal is stressful—an accepted offer means that we have to find a buyer, or start a rehab, or put an ad in the paper to get a tenant. Plus, there’s the additional bookkeeping when the checks roll in, and, of course, the taxes to pay on the profit at the end of the year… 

Since stress and anxiety lead to psychological and medical conditions, including high blood pressure, overeating, bad hair days, fear of success, and a whole host of others, making deals should obviously be avoided at any cost. So, I think it’s important, for the sake of our own health and well-b
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Ten Things to Do to Avoid Making Deals

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Let’s face it: making deals complicates our lives.  

When we first become involved in real estate, buying a property can be very anxiety-provoking: I mean, really, even though we’ve done all our due diligence and run the numbers 15 different ways and talked to our favorite mentor about it and it STILL looks like a great deal, how do we ever REALLY know? And this leads to self-esteem problems, as we’re constantly second-guessing ourselves and berating ourselves over our lack of confidence.

And even for seasoned investors, taking on a new deal is stressful—an accepted offer means that we have to find a buyer, or start a rehab, or put an ad in the paper to get a tenant. Plus, there’s the additional bookkeeping when the checks roll in, and, of course, the taxes to pay on the profit at the end of the year… 

Since stress and anxiety lead to psychological and medical conditions, including high blood pressure, overeating, bad hair days, fear of success, and a whole host of others, making deals should obviously be avoided at any cost. So, I think it’s important, for the sake of our own health and well-being, that we all
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What is Cap Rate and how does it affect the value of an Apartment Complex?

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There are 3 figures that go hand-in-hand when trying to determine a commercial/apartment property's value. They are; Net Operating Income (NOI), Cap Rate (CR) and Asking Price or Purchase Price (PP). If you know 2 of the figures you can always figure out the third.

Here I'll be talking about the Cap Rate of a property. More specifically, how the Cap Rate works in conjunction with the Net Operating Income (NOI).

Let’s get started. First off, Cap Rate is short for Capitalization Rate. In short, Cap Rate is, “The process of converting anticipated future income into present value” according to the American Heritage Dictionary. It’s also your rate of return if you bought your property using all cash.

Here’s an example: If I purchase an Apartment Complex for $1M and it generates a Net Operating Income at the end of 1 year in the amount of $100K, then my Cap Rate is 10%. The formula for Cap Rate is:

CR = NOI / PP

Cap Rate (CR) = Net Operating Income (NOI) divided by the Purchase Price (PP) of the complex. Therefore, if we plug in these numbers: $100,000 / $1,000,000 = .1 or 10%. If this same complex generated $90K in NOI, its Cap Rate would be $90K / $1M = .09 or 9%. Lower income, lower Cap Rate, but the Purchase Price stayed the same.

Knowing the Cap Rate allows us t
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