Income Property In Long Beach California..

Why there is NO BETTER City to Buy, Operate & Sell!

Income Property Builds Wealth!- You Control Large Asset

- Others (renters) Pay For It- You Reap the Rewards

10 Great Reasons to Invest in Long Beach Real Estate

1.Long Beach is the 5th largest city in California.

2. Long Beach is the last beach city where real estate is still affordable

3. The Port of Long Beach is one of the world’s busiest seaports and

the #1 container port in the U.S.

4. Nearly 50% of Long Beach’s residential real estate is income property.

5. Cal State, Long Beach is the 2nd largest university in the state of California.

6. Average days of sunshine in Long Beach is 345 days.

7. The Long Beach Section 8 Housing Assistance Program offers one of the highest rental rates in the county.

8. Long Beach is ranked #1 in Los Angeles county for new home shoppers due to it’s quality of life characteristics and affordable housing.

9. Long Beach Memorial Medical Center is an award winning hospital and one of the best in the nation.

10. Long Beach has no rent control.

10 Great Reasons to Invest in Long Beach Real Estate

NO RENT CONTROL! Offer a quality product & rent It for what the market will pay, quality rentals can and do exceed market rents by up to 50%!

Studio Unit - $900.00

1 Bedroom - $ 900.00

2 Bedroom - $ 1,350.00

3 Bedroom - $ 1,675.00

4 Bedroom - $ 2,150.00

Market Rents In Long Beach Ca:

Revised 1/2005

Rents vary based on location, proximity to Ocean and features available in the unit….

Studio Unit - $950.00

1 Bedroom - $1100.00

2 Bedroom - $ 1,450.00

3 Bedroom - $ 1,750.00

4 Bedroom - $ 2,150.00

Market Rents In Long Beach Ca:

Revised 1/2008

Rents vary based on location, proximity to Ocean and features available in the unit….

Section 8 Rents In Long Beach:

Studio Unit - $746.00

1 Bedroom - $ 900.00

2 Bedroom - $ 1,124.00

3 Bedroom - $ 1,510.00

4 Bedroom - $ 1,950.00

You can also charge for garages, storage and other extras: For example garage in Long Beach go for $225. to $120. Per month depending on location. A great way to maximize income at a 4 unit property is to build storage and charge for it... INCREASE GSI, add to your pocket and the value of the asset.

What is the GROSS Multiplier? (GM)

Property Acquisition Price / Divided by NOI (Net Operating Income)

Example: A $1.1 Million dollar acquisition with an annual NOI of $86,000 would have a 13.95% Gross Multiplier.

Rule: The LOWER the GROSS Multiplier the better.

“The rate of return a property will produce on the owner's investment.”

What is a Cap Rate?  -

(Capitalization Rate)  

Two very important terms, this is how the value of Income property is determined – much like a stock, this is how the Bankwill value the investment -

Capitalization Rate (CAP Rate)In real estate appraisal, capitalization is the process of converting income, in the case of real estate net rental income, to a property value.  The capitalization rate or CAP Rate for short, is the ratio of yearly net income to the property value. 

For example, if you purchase an investment property for $120,000 dollars and can generate $1,000 per month after all operating expenses (before debt service), then the CAP Rate would be $12,000 divided by $120,000 or 10 percent.  This means it will take approximately 10 years to recoup the property value in net rental income assuming the rent stays the same. 

The lower the CAP Rate the better if you are selling and the higher the CAP Rate the better if you are buying. 

However, make sure the neighborhood is good and the property is in decent condition.  CAP Rate does not help if the property is declining in value. 

Cap Rate  - Capitalization Rate  

              The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties.  Put simply, the cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage. 

Investors, lenders and appraisers use cap rates to estimate the purchase price for different types of income producing properties.  A market cap rate is determined by evaluating the Financial data of similar properties which have recently sold in a specific market. 

It  provides a more reliable estimate of value than a market Gross Rent Multiplier since the cap rate calculation utilizes more of a properties financial detail. The GRM calculation only considers a properties selling price and gross rents. The Cap Rate calculation incorporates a properties selling price, gross rents, non rental  income, vacancy amount and operating expenses thus providing a more reliable estimate of value. 

“The rate of return a property will produce on the owner's investment.”

In summary, from an investors or buyers perspective, the Higher the cap rate, the better….

NOI                                                                   NOI                       

Cap Rate  =     --------                        Estimated Value  =    -------------                         Value                                                              Cap Rate               

_____________________________________________________

Example 1:  A property has a NOI of $155,000 &the asking price is $1,200,000                                 

$155,000                        

Cap Rate =       --------------    X     100   =  12.9 rounded

$1,200,000               

__________________________________________________________________________________

Example 2:  A property has a NOI of $120,000 and Cap Rates in the area for this type of property are 12%.     

$120,000                         

Estimated Market Value  =     ------------ =     $1,000,000

.12                                                                

Net Operating Income (NOI) is calculated as follows.

Income                    

Gross Rents Possible                      35,000         Other Income 2,000

Total Gross Income                       37,000         Less Vacancy Amount

-3,000          

Gross Operating Income                      34,000            Less Operating Expenses                10,000          Net Operating Income                       24,000

What NOI? (Net Operating Income NOI)

 Net operating income is determined by subtracting vacancy amount and operating expenses from a properties gross income. 

Operating expenses include the following items:

Advertising, insurance, maintenance, property taxes, property management, repairs, supplies, utilities, etc. 

Operating expenses do not include the following items; Improvements such as a new roof, personal property such as a lawn mower, mortgage payments, income and capital gains taxes, loan origination fees, etc.

Estimated or rounded flat fees can be used to determine a ball park NOI: Example, Tax’s 1%, Mgnt 10%, 4-5% all others combined….

What is Debt Coverage Ratio?

Also known as Debt Service Coverage Ratio (DSCR).  The debt coverage ratio is a widely used benchmark which measures an income producing property's ability to cover the monthly mortgage payments.  The DCR is calculated by dividing the net operating income (NOI) by a properties annual debt service. 

Annual debt service equals the annual total of all interest and principal paid for all loans on a property.  A debt coverage ratio of less than 1 indicates that the income generated by a property is insufficient to cover the mortgage payments and operating expenses.               

For example, a DCR of .9 indicates a negative income.  There is only enough income available after paying operating expenses to pay 90% of the annual mortgage payments or debt service.  A property with a DCR of 1.25 generates 1.25 times as much annual income as the annual debt service on the property.  In this example, the property creates 25% more income (NOI) than is required to cover the annual debt service.

Example: 

We are considering buying an investment property with a

net operating income of $24,000 and annual debt service of $20,000. 

The DCR for this property would be equal to 1.2.   This means that it generates 20% more annual net operating income than is required to cover the annual mortgage payment amount.

Net Operating Income            $24,000

Debt Coverage Ratio    =     ------------------------------      =     ----------- = 1.2

Annual Debt Service               $20,000              

Many lending institutions require a minimum debt coverage ratio value to procure a loan for income producing properties.   DCR requirements for lending institutions may vary from as low as 1.1 to as high as 1.35.  

From a lending institutions perspective, the higher the DCR value, the more income there is available to cover the debt service and thus the less the risk.

What is Debt Coverage Ratio? (continued)

Summary of Important Terms:

Rule 1: The LOWER the GROSS Multiplier the better.

Rule 2: In summary, from an investors or buyers perspective, the Higher the Cap Rate, the better….

Rule 3: Positive DCR of a minimum of 1.1 should be achieved (unless tax write off is required or other strategy is being enforced.)

Rule 4: GSI = Gross Schedule Income RAISE this as high as possible, use market rents to determine value of investment – Make 1 bedrooms 2s, 2 beds 3 beds and rent garages where possible – RAISE THE GSI Raise the VALUE!

Sample Spread Sheet to Determine Value of Investment:NOI - CAPITALIZATION 9867 Main St. Long Beach CA. 90802

Current Possible Rents Current Raise ToCap Rate 4.80% 6.00% unit 1 $950.00 $1,400.00Annual Gross Income $75,000.00 $120,000.00 unit 2 $950.00 $1,400.00Vacancy Deduction (Average 3%) 3.00% $2,250.00 $2,250.00 unit 3 $900.00 $1,400.00Expenses (Average 2%) 2.00% $1,500.00 $1,500.00 unit 4 $900.00 $1,400.00Mgnt Fee (Average Non Owner Occup 10%) 10.00% $7,500.00 $7,500.00 unit 5 $850.00 $1,100.00NOI - Net Operating Income $63,750.00 $108,750.00 unit 6 $850.00 $1,100.00Annual Interest Rate 6.40% 6.40% unit 7 $850.00 $1,100.00PROPERTY VALUE (interest Rate) $996,093.75 $1,699,218.75 unit 8 $1,100.00CAP RATE PROPERTY VALUE $1,328,125.00 $1,812,500.00 ttl $6,250.00 $10,000.00

Annual GSI $75,000.00 $120,000.00Gross rent $75,000.00 $120,000.00Multiplier 16.47 11.03PROPERTY VALUE (Based on MULTIPLIER X Gross Rent) $1,235,294.12 $1,324,137.93 * GCI Gross Scheduled Income

RETURN ON INVESTMENT (Does NOT include EQUITY) 6.07% 9.06%

Purchase Price $1,050,000.00 $1,200,000.00NOI - NET Rents $63,750.00 $108,750.00Multiplier 16.47 11.03

Potential Costs Of Upgrades $15,000.00 (paint and roofs)TOTAL COST OF PROPERTY $1,065,000.00MARKET VALUE WHEN COMPLETE (ENTER %) 10.00% $1,156,500.00

NOI - Net Operating Income $63,750.00 $108,750.00Estimate Down Payment with 1.1 offer ######### $220,000.00 $220,000.00Estimate Loan $880,000.00 $880,000.00 Yrly YrlyEstimated Payment 4.67% $4,109.60 $4,109.60 $49,315.20 $49,315.20Estimated Cash after Debit Service w. this example $14,434.80 $59,434.80

30 units in long beach just sold for 2.7mil

Prior Sale in 1995 $940k

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Income Property Builds Wealth!

5653 E. 2nd Street Long Beach CA

4 Units In Belmont Shores…

Value $999k 1/2005

Sold $685k 1/2004

Sold $210k 3/1997

I was back Up offer @ $685 to a 1031 Investor paying all CASH – GSI 1/2004 was $34k – GSI today $59k

103 Hermosa Ave Long Beach CA 90802

Before taken in April of 2004 – After taken in September of 2004

Real Estate Appreciation

Stayart’s Re-Appraise for $1.1 million in October, 2004(Stayart's spend $200k and create 3 units from 1 SFR)

Ross/Rock Sells to Stayart's for $730k in May of 2004

Cipra Sell to Ross for $380 in 1998

906 Hoffman Long Beach CA

Before & After Photo’s

Sold 12/28/04 $789,000

Sold 5/28/04 $545,000(10k over asking CASH)

$55.2k GSI in December 2004

$24k GSI in May of 2004

2009 Value Appx. $900k

375 Newport Long Beach CA (In The Heights)

Sold 1/2005 $989k

Sold 2/1999 $389k

GSI in 1999 was $39k per yr –

GSI in 1/2005 is $66k per yr

GSI should be $80k and will be shortly….

4 Units with garages, 1 3 bdrm 2 bath, 3 2bdrm w/2 baths

2009 Appx. Value $950k

930 Redondo Long Beach CA

Listed 11/2003 $604k

Sold 11/92 $430k

1 2bed/2bath SFR with 4 1 Bdrm Apt. in back

GSI=$48,720.

Could be $65,400

2009 Appx. Value $800k

3032 E. Vista St. Long Beach CA

Sold 3/2004 $990k

Sold 6/2002 $800k

Sold 7/1999 $380k

GSI in June of 2004 was up to $68.6k from $30k in 2002/03

$74k was spent upgrading this property in 2002, private yards and patios where made in back…

                                                                                             

2009 Appx. Value $1.1m

1014-20 Bennett – Long Beach CA

FOR SALE 1/10/05 $1.1 Mil

Spent $180k

(All new Bldg)

$68k GSI in 2004

$37k GSI in 2003

Acquisition By:

Barry Klazura for $709,000 11/25/2003Before & After Photo’s

2009 Appx. Value $1.1m

10% Property Appreciation =(Example)

Closing Question?

When property appreciates in value over time...

What would rather own/control?

a.) Single Family Home and Condo investment (total value say $600k){$60k Profit)

b.) Single Family Home & 4 unit building

(total value $1.2m){$120k profit}

Both A and B are the same, you live in your home and some one else pays for the condo or the 4 unit it’s all the same.... INCOME PROPERTY BUILDS

WEALTH!

INCOME PROPERTY BUILDS WEALTH!

• Notice even though Real Estate Market Tumbled 30% over 2007 & 2008

• Income Property remains STEADY at late 2005 /2006 Values

• Income/Rents remain constant, thus reducing obligation/amount owed

• Property will appreciate again, as market heats up > PROPERTY always goes up when looking at 10 to 15 year cycles...

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