Multi-Unit Rags to Riches

Month 1 – Agenda Identifying Markets & Marketing

Strategies Locating Multi-Unit Opportunities

Identifying Possible MarketsMarketing Strategies Acquisition – Analysis

“In – Field”Physical Due DiligenceIdentifying Value PlaysTurn Key vs. Reposition

Private Money – Equity PartnersSyndicationWorking With Commercial Banks Property Management

“In - Field”Building Your TeamRehab Budget & Scope of WorkContractorsWorking With City, Town, County

Month 2 – AgendaFunding & Financing

Due DiligenceOperations – Management of Your

TeamForms & DocumentationSettlement Preparation

“In – Field”Property Take Over1-3-5 Year PlanResident RelationsInvestor Relations

Month 3 – AgendaDue Diligence

Your Homework Was To:Your Homework Was To:

1. Research Possible Markets of Interest to You

2. Identify Those Markets 3. Indentify the Market Cycle 4. Research and Understand the Market5. Contact and Communicate with

Commercial Brokers/Realtors6. Identify Property Types Your Interested

In Apartments, Mobile Home Communities, Self Storage

7. Order a List from www.DunHills.com

Marketing StrategiesMarketing Strategies for Multi-Unit Investing for Multi-Unit Investing

Identify Property Criteria

“Sweet Spot” - $500,000- $2,000,000 Apartments – Mobile Home Communities – Self Storage

Target Market Areas Selected A – B – C – D Properties

Size of Property Non – Performing vs. Reposition

“Per Door” CostsOnline Market Research – Get a Feel for Market

Marketing…Marketing…Marketing…Marketing…Marketing Marketing

Consistent Marketing Message for Properties in Target Market (s)

Consistent Marketing Strategy of Yourself aka… Networking and Building Relationships

Marketing of Property Opportunity aka… Property Package

Marketing for Potential Buyers aka.. Wholesale Opportunities

The Marketing The Marketing MadnessMadness

Marketing Strategy

Characteristics Expected Results

Sellers Letter

• Mail Every 6-8 Weeks• Professional Appearance (Not Ugly

Postcard)• Typed and Printed• Sign in Blue Ink• Hand Address Front of Envelope in

Red Ink• First Class Postage• Odd Shaped Envelopes ( Invitation

Envelopes are Best)• Mail 100 letters per week

2% Response Rate is Normal

Opportunity to Speak to Owner or Manager

Motivated Seller Usually Responds

Bird - Dog• Run a Craigs List Ad• Want Someone Local • They Can Take Photos• Find Properties You Might Not

Find

You Will Need to Train

Great Opportunity for Finding Deals Not Listed

I’m Interested In Buying Your Property! Read On…

Owners NameAddressCity, State, Zip

Dear (First Name), I’m interested in purchasing your property at 73 Soloman Street Martinsville, VA. Are you interested in selling?I currently hold a portfolio of properties similar to yours and I am looking to add more.As a property owner, I realize that there are a number of reasons why someone may be interested in selling. Everyone has their own reason and my question to you is, are you ready to sell now? If so, I am ready to buy.I can close quickly or delay the closing as long as you like.Please contact me at your earliest convenience so that we can discuss the sale of you property. Call me now at 555-5555.I look forward to hearing from you.

Sincerely,Your

NameP.S. To Get The Best Price For Your Property, Call Me Now

At 555-5555

Date

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

Sincerely,

P.S. Finally rid yourself of tenant hassles, get a fair price for

your property, not pay a realtor’s commission and get to settlement quickly, Lets Talk!!! Reach me directly at 703- 555-5555!

The Marketing The Marketing MadnessMadness

Marketing Strategy

Characteristics Expected Results

Broker / Realtor

• Usually Know Market Well• Have Access to Potential “Pocket

Listings”• Great Resource • Assist with Due Diligence• Motivated to Help When They

Know You’re Serious

Some Are- Some Aren’t So What- Who’s next?

Great Asset to Have on Team

Other Opportunities

Property ManagementCompanies

• Know Properties in Area• Know When Properties are for

Sale

Need to Build Relationship

Great Opportunity for Finding Deals Not Listed

The Marketing The Marketing MadnessMadness

•Clearly Defined Goals and Objectives

•Self Evaluation

•Your Risk Tolerance

•Time Management

“A Relationship is NOT Something that You

Pursue…It’s What Happens to You When You Are

Immersed in Serving the Dreams of Others!”

- Tom Peters

Credibility Portfolio

Educational

Experiences

Key Strategies

and Goals

Vision / Mission

Confidentiality

Agreement

Sample Property

Package

Investment

Criteria

Resume / Bio

Executive Summary

YOU

“It Really all Boils Down to One Simple Element…

Those Who Really Care and Those Who Really Don’t!”

-Dan Zadra

In Order to Harvest You Must First …

Carefully Plant Your Crop By Hand

Relationship Marketing

F amily

O ccupation

R ecreation

M oney

Marketing Madness With Marketing Madness With NewslettersNewslettersIdentify 4-5 Centers of Influence in Your Life

Family

Friends

Co-Workers – Associates –

????

Your newsletter should have a strategic outline that, when followed, account for a higher read through and response rate. The newsletter should contain the following categories and then listed in order of suggested appearance.

Title/ Contact Info./ Issue Number/ Date/ Inside the Issue Table of

ContentsEducational Information

Personal Information Financial Influences Success Showcase

Call To Action Vision Statement

The Newsletter

The Property Package CONTENT PAGE

Overview Executive Summary

Location Map Investment Highlights

Equity at ResaleProjected Owner Cash Flows and Returns

Property Package Assumptions and Property Information

Marketing the Marketing the OpportunityOpportunity

The Property Package

Financial AssumptionsMortgage Information

Five Year Proforma and BudgetAcquisition Expenses

Floor PlansArea Demographics

RisksCommitment Instructions

Marketing the OpportunityMarketing the Opportunity

Marketing the OpportunityMarketing the OpportunityWholesale Exit Strategy

Build Your “Buyers List” – Gold Mine If Seller isn’t Interested in Selling; Identify if There is Interest in Acquiring Additional Properties in Area Document Their Criteria – Wants & Needs

What’s the Wholesale Paycheck Worth to You?

Just Assign the Ratified Contract Complete Physical & Financial Due Diligence Complete the Property Package Complete 3rd Party Reports

Analysis of a Multi-Unit Analysis of a Multi-Unit PropertyProperty

Gross Collected Rent- the income of a business from all

sources before deducting allowable expenses

Effective Income - Gross Income less vacancy and collection allowance, plus miscellaneous income

Net Operating Income - Income after deducting all operating expenses but before deducting income taxes and interest

Debt Service - the total of annual costs in principal, interest and charges related to the mortgage

Cash flow - A measure of a company’s financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit minus amounts charged off for depreciation, depletion and amortization.

Capitalization Rate – Cap Rate

In commercial real estate, cap rate, or capitalization rate, is used to determine the values of income producing properties such as apartments of five units or more, office buildings, strip malls and other such properties. The cap rate can represent extremely different things to different people in respect to their interests in commercial real estate.

How it works…..

Cap Rate has two main components which area: Net Operating Income (NOI) and Sales Price/Value of the property.

Divide NOI by the Sales Price/Value of a property; you receive the Cap Rate.

If you have 2 of the 3 components you can determine the variable in the equation. The different equations used to determine any of the three variables are below:

1. NOI / Value = Cap Rate

2. NOI / Cap Rate = Value

3. Value X Cap Rate = NOI

As you can see, depending on the information you have regarding the property, you can determine any of the three variables.

OK!!! So What? Why Do I Need to Know the Cap Rate?

Safe Investment: Cap Rate of 5%

Avg. Investment: Cap Rate of 10%

Risky Investment: Cap Rate of 20%

So Like Ok! Now

What?

Debt Service Coverage Ratio - DSCR

It is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be a minimum of 1.25, preferably 1.35+. That would mean the property is generating enough income to pay its debt obligations.

In general, it is calculated by:

A DSCR of less than 1 would mean a negative cash

flow. A DSCR of less than 1, say .95,  would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.

Cash on Cash Return

Cash on Cash Return is probably the most important ratio you need to focus on when evaluating the performance of a property investment. Cash on Cash Return is the property's annual net cash flow divided by your net investment, expressed as a percentage.

EXAMPLE:If the net cash flow from a property is $10,000,

and the cash invested in the property is $100,000, then the Cash on Cash return is calculated to be 10% ($10,000/$100,000).  The net investment in property is the cost of the property less the amount you borrowed.

A way to view this ratio is to compare it to a return of a certificate of deposit.  You deposit money in the bank and the bank pays you an annual return, say 5%.  The 5% is the Cash on Cash ratio. 

Analyzing Rule of Thumb

Use Actual Figures and Expenses.. If not then the “rule of thumb” applies as an average of expenses

5-10% - Physical or Economic Vacancy

Apartments – 45-50%

Mobile Home Communities – 40-45%

Self Storage Facilities – 35-40%

Detailed Rule of Thumb

Phases of AnalyzingPhase 1- “Sniff Test”If the property passes then contact

seller/broker for additional information on property.

Questions to ask, “I am interested in the property located at 123 Main Street. Is it still available? Would you please send me the property package and any info you have? “I have a Seller Questionnaire. May I send it to you?”

When you get information back then move to…

Income & Expense Statements Rent Roll Samples

Property Information Package From Seller

Income and Expense Statement

Rent Roll

Seller Questionnaire

Phases of AnalyzingPhases of Analyzing

Phase 11- Analyze Manually “Long Hand”

Use the Rags to Riches Analyzer and Property Data

If Phase 11 Analyzing Provides Acceptable Figures to You Then It’s Time to Draft Your…

Letter of Intent ( LOI )

Assignments for Assignments for Class 2Class 2

Identify Your Property CriteriaDocument Specific Benchmarks and MilestonesCreate Your Personalized Marketing StrategyMail 100 Letters Weekly

Clearly Define and Document Your Goals, Strategies and Objectives

Create the Elements of Your Credibility PortfolioReach Out - Connect - Build Relationships – NetworkIdentify Centers of Influence Create YOUR Newsletter Review and Become Familiar with the Property PackagePractice Analyzing Property Information

Make Contact and Interview Share Your Investment Criteria

◦ Example..20-100 Multi-Family Apartment Units◦ 9-11 Capitalization Rate ( Cap rate)◦ Age of Building Criteria◦ Areas of Focus◦ Occupancy & Vacancy Preferences◦ Ask Questions about their Specific Knowledge of Area ◦ Path of Progress in the Area◦ Preferred Zip Codes◦ Their Area of Expertise, Years in Business, Potential Properties ◦ Request Information on Possible Properties