Tag Archive for: Gerchick Real Estate
Cost Segregation is an application by which commercial property owners accelerate depreciation and reduce the amount of taxes owed! I have used this myself quite successfully. This savings generates substantial cash flow that the investor can use to reinvest into other investments or pay now their loans for principal reductions thus generating more cash flow!
A Cost Segregation Study is an engineering-based calculation that you can provide to your CPA. These calculations are used to change the way their commercial property is depreciated. This is an affordable, legal method of reducing income so the investor pays less in income taxes. The AICPA and Journal of Accountancy both suggest the use of Cost Segregation Studies for clients who own commercial and residential rental income properties.
When I sell a piece of commercial property, it is likely that my client is not taking advantage of all the tax strategies and write-downs, written to their benefit, that are available to them through new and existing tax code. This information could not only benefit them on the property they just purchased, but on others in their portfolio. Most of my clients would love additional cash flow from a reduction in their largest expense: taxes.
If you have an interest in this, I have a good source for this service. Schedule a call with me today. If even you are thinking of purchasing or have already purchased.
One fourplex saved me $12,000 to offset against my own tax bill!!! I am always looking out for your bottom line!!!
I hope that everyone is doing well. The Phoenix Market is absolutely on fire.
Call me and as you know I answer my phone 602-688-9279.
Linda
Closing Protection Letters-What are they and when should you get one
A closing protection letter is issued in an Escrow and there could be several issues. What are they?
First a closing protection letter is issued when money is deposited to the Title Company. This is used to protect the money that is held by the title company to “protect” the money that they hold. It is used to safeguard the funds from fraud and embezzlement. It is also used to protect the money if the title company would close their doors. Typically not in this market but in the late 2000s we saw this.
Who gets a closing protection letter? The three main parties are the Buyer, the Seller and the lender if there is one involved on the Buyer’s side.
The Title companies all have a credit line and this line could be underwritten by a larger company. So the Closing Protection letter may come from a different company but will have the Escrow number on it. This letter for the amount of the money held will go against the credit line. This is standard practice.
If you are in the Seller’s position and earnest money is deposited, you definitely want a “CPL” to insure that your interest in the earnest money is protected. If for some reason the Buyer defaults and you have the right to the earnest money, you want to be sure that it is there when you obtain it.
If you are in the Buyer’s position and you have earnest money on deposit, you definately want a “CPL”. This protects your earnest money as the followed in the definition of the terms of the contract. When you deposit your closing funds whether it is additional funds or the whole amount, you should request an updated CPL.
If you are a Buyer and are obtaining a loan, the lender is NEVER going to send over the closing funds until they have a CPL as well.
So as you can see there may be three to four (or more) CPL in an Escrow. These are highly recommended for both the Buyer and Seller. As I have stated, your lender will require it.
Remember to post your comments and feel free to call me anytime.
We also have several new listings-https://justsoldit.com/team-gerchick-listings/
I answer my phone-602-688-9279
Have a great day!
Linda
Hold open Title policies are very useful for a few reasons. First, what is a hold open policy?
A hold open policy must be requested prior to the Close of Escrow of the purchase of the property. This is used for investors that are intending to resell the property in 2-4 years. What this does is save the Investor fees for the owner’s title policy that is issued when the Seller sells the property.
The Buyer soon to be Seller will pay a small fee at Close of Escrow when they aquire the property. However, when this person sells the property there is a substantial savings in the Title Insurance. NOTE-The Seller must use the same Title Company when sellig the Property without fail. When we have a hold oen policy I disclose it in the listings to the agents.
What if the owner decides to kepp the property after close? It is important that the Seller contact the Title Company and have them close the policy in order to maintain the Title Insurance. There is not a fee for this but this is an often overlooked item.
What if the Seller is not quite finished with the repositioning of the property and the hold open time period os about to expire? It is easy to extend for a small fee. The Seller must contact the Title Company prior to the expiration of the policy and request an extension. There will be a small fee for this but it still saves quite a bit at closing.
There are different time limits on policies depending on who is the underwriter of the policy. The Buyer-Seller needs to decide how long that the repositioning is going to take and buy the policy accordingly.
Wait till next week for more education!
Remember that I answer my phone. It’s funny people say, “You answered your phone!”. I say “Well you called me!”.
602-688-9279
Take Care,
Linda
Understanding the how and when of onsite inspections is critical to the due diligence process
While listing agents want to push through to the physical inspection-I say wait and let’s be sure that we are ready to proceed. Here are some tips and while this may not be all of the types of inspections that you may want to do but this will give you a really good place to start.
You really want to be sure that you have all of the books and records and the other materials that you need in order to proceed with physical inspections. If you need to personally walk the units before you start paying for inspections-do this up front and as soon as you are able. You can do this concurrently of reviewing the books and records.
However, when you are ready to start the actual physical inspections, remember that you have a time clock ticking. Make sure that you can get all of the reports in prior to the expiration of the inspection period.
There are several types of inspections for different reasons. Be sure that you want to order the right kind. Here are a few examples:
- Physical Inspection
- Wood Infestation Inspection
- Sewer Inspection
- Septic Tank or alternative waste inspection
- Environmental Inspection
- Survey
- Roof Inspection
- Asbestos Inspection
- Mold Inspection
There may be a number of other kinds of inspections depending on your needs and the type of property. It’s pretty easy to see that you could rack up some significant costs on inspections. It is critical to know what the property needs now and what may be needed in the immediate future or even the long term future.
At the very least, get a physical inspection and wood infestation report. Many people do not realize that in the standard AZ Listing agreement, the Seller has already agreed to place a clear Wood Infestation report with Title. The physical report may or may not lead to other kinds of inspections.
While I never discourage Buyers from obtaining any inspection type of report, I like to see a Buyer start with the basics. It also depends on what type of property that they are buying. A gas station-you be an environmental report. Maybe not as important on a Multi Family.
On a multifamily property, maybe a roof inspection is more important.
If the property is older, a sewer and pipe inspection may be critical.
You need to rely on your Broker and primary inspector to guide you but make the ultimate choice of the kinds of inspections needed again for your piece of mind.
Next week let’s discuss Title Hold Open policies. What you don’t know what this is? You are in for good information.
Remember that I answer my phone-602-688-9279
Linda
The Books and Records of a multifamily can be not only hard to understand but incomplete as well!
When I am asked to review books and records, it is always important to understand two items.
First, knowing what to look for as real expenses. Most owners and property managers simply lump both operating and capital expenses together. Here is the good news-this is an easy way to evaluate the “major” work done to the building. Here is the bad news-this makes it harder to ascertain the real operating numbers on a building. Remember that capital expenses are considered nonrecurring expenses.
A good rule of thumb is to see if these expenses are completed on a routine basis. Pest control may not be done every month, maybe every three months but a termite treatment would be considered a capital expense. Carpet may or may not be considered a capital expense as this may need to be replaced whenever a tenant moves out but tile flooring is a capital expense. Maintaining the landscape is an operating expense but installing new landscape is a capital expense. When I look at books and records and I see a plumbing expense over $500 I will question what it was for. Often I can find new hot water heaters in the books and records.
Once we have removed the capital expenses from the operating numbers, this makes it easier to do an honest evaluation on the property. WAIT I said that there are two factors that I look for on Books and Records.
Secondly, it is important to make sure that all expenses are accounted for. One of the biggest issues that I see with books and records on the MLS is that uneducated agents (again why you need use an experienced commercial Broker) is that they will not add a vacancy rate or management fees on the MLS. This will give you a higher cap rate but not accurate figures. When I question them, here is what I often hear, “Oh, the owners manage the building themselves!”, or “The building is full.” When I respond, I will ask, “Does this mean that the owner will manage for my clients forever for nothing?”‘ or “Does this mean that the owner will guarantee 100% occupancy forever?”. The answer is of course not. Then my answer to the agent is get your numbers right. Even a self managed building should show these numbers.
Often the taxes and insurance are not shown on the books and records. This may be due to the fact that the owner has the building self managed and pay these expenses out of the their account vs. the property manager’s account.
What about additional income? Laundry, storage and pet fees etc? Some property managers keep the late fees as part of their income. So this as additional income may not be used.
Once you have the actual numbers and they have been verified, it becomes pretty easy to figure out if the property makes sense.
In the Phoenix market, where rents are easily increased, I usually run two spreadsheets. One with the VERIFIED actuals and one with the projected income based on the actual expenses.
I had a client this past week not understand that without this being done completely, I would not provide the analysis on the building. This type of analysis usually takes me 3-4 hours to completely do depending on the information that has been provided. Often it is a back and forth between myself and the other agent in order to get the correct answers. The above mentioned client was frustrated with me instead of welcoming the information being done correctly.
Often times we can obtain a building that other investors overlook due to the inability or lack of knowledge to understand the books and records. This is a great benefit for my clients.
Next week we are going to discuss inspections and I will give an overall view of what kinds and when they are needed.
Remember that I answer my phone and WELCOME you comments at the bottom of this Blog!
Have a great day!
Linda 602-688-9279
Let’s speak about Rent Rolls in income producing properties!
Rent Rolls on an income producing property can either generate an offer (whether you are a Buyer or a Seller). Giving the most up to date and accurate information is critical not only for a Buyer or Seller but the lender and also to attain an overall view of where the property stands. This means not only performance but also in the market place.
Rent Rolls and what should be on every rent roll:
- Date
- Tenant name
- Effective Date of Lease
- Expiration or Month to Month
- Security Deposit (both nonrefundable and refundable and these need to be stated)
- Market Rent
- Amount of Rent
- Rental Sales Tax column and who pays it
- Additional fees (Pet, Parking and Storage as an example)
- Total Monthly fees Due from Tenant
- Date last paid
- Any balances due from Tenant
- Another column should be for notes
It should be noted that all of these items should be able to ascertained from the leases (and/or addendums).
Protecting your Rent Rolls:
The rent roll for an income property is absolutely critical whether you want to sell, buy or even keep your property.
If you plan to sell this should be prepared and available to the Real Estate Broker and all potential Buyers. When I list a property, this is why I want copies of ALL leases. One of the first things that I like to do is take the leases and create a rent roll, then compare my rent roll to the Property Manager’s Rent Roll. There are often differences but are usually easily handled will good communication with the Property Manager. For example, maybe I was not given an addendum.
If you are a Buyer, you certainly want to see a rent roll. It is a great way to evaluate the Property and even the job that the current Property Manager is doing. If the current owner cannot provide you with a rent roll, the best idea is to start with the leases. Then you have the ability to ask good questions instead of simply asking for a rent roll that may or may not be accurate. Remember that a Lease is a legal contract and if you are buying the building, you are also buying the leases as they will convey as written to you.
If you are planning on keeping the building, you should evaluate your rent roll for accuracy at lease once a year. What is you want to re-finance the property? The Lender will ask for a complete rent roll almost immediately. Do not overlook this very important piece of your investment.
One of the most common errors I see on rent rolls are concessions. FIRST, if you are going to give a move in special, no not give it in the first month. Do it at least in the 4th or 6th month. Here is an idea that I like to use. Do not give a rent concession, but a grocery store or gas gift card. You can expense this but not HURT the rent roll. On a fourplex a $25.00 per month per unit has either decreased or increased the value by approximately $25,000.
One last thought on your rent roll-this is a very valuable tool and a great way to evaluate your rents against the market and also a ten thousand mile overview of your Property Manager.
Questions, call me 602-688-9279. Next week I will be discussing the essence of books and records.
Have a great week and remember that I answer my phone!
Linda Gerchick, CCIM
Broker’s Advantage
BEFORE I list an investment property for sale, there are several items that I really like to prepare. Sometimes it may take a month or so to complete some of the items that are needed.
First and foremost, I want to see the rent roll and books and records. Rent rolls are so important to the overall sale ability of the property. I personally do a drive by to view the area and the property. It is also important that I get to get into the units. Wouldn’t be awful if we get a great contract and good buyer and when we get to inspections there are inspection or maintenance issues that will kill the deal wither on appraisal or inspection? I never want a Seller to spend money where it is not needed but sometimes it is really important.
Next week I am going to blog in depth about the rent toll and books and records. This will be one of the more important blogs that I will do this quarter.
I also want copies of ALL pages of the leases. Even if the tenant is month to month. This is not disclosed to the public but it is important that we have these on file. We also, go through the leases to make sure that they match the rent roll.
If there is a laundry room lease I will need this as well.
It is important that if the property is owned in an entity or trust that I receive these documents as well. Not only do I need to verify that the person signing contracts is the correct person but the Title Company will need this as well.
The Insurance Loss run is needed and I will help the Seller prepare a schedule of personal property and capital expense list.
The Seller’s Disclosure Statements will need to be prepared and signed.
Once these items are done or being done, I then schedule professional photos or videos depending on the property.
As you can see there are a number of items that are done prior to and at the time of listing.
In future blogs, I will be discussing marketing and the extensive marketing that I invest in my Seller’s properties.
If you need to speak to me; please call my cell at 602-688-9279. Remember that I built my reputation on the FACT that I either answer my phone or return my calls promptly!
Linda
If you asked 100 Professional People to name the top three challenges, time management would be in the three every time. Calls, emails, texts, and social media demand immediate attention. Even the most focused people can be distracted!
The absolute KEY to managing your time is organizing your calendar and STICKING TO IT. This will really keep you on the path and help you complete your tasks every day. Here is how I do it and I am told that I am one of the most organized Professionals in the industry.
The Night BEFORE
I always start my day the night before. I use a task program that is free and so easy to do. I add everything that I want to accomplish-phone calls, mailing, items to get done and yes even picking up dry cleaning. If I see that I have more to do in one day than I know I can get done-I prioritize them. With my task program if I do not complete an item, I can add notes (if I have started the task) and change the date.
As I go down the list, if I find that something is time sensitive, I add it to my google calendar to be sure not to miss the time. I also am sure to set the reminder appropriately. For example, if I need to drive for 20 minutes I put the reminder at 30 minutes so I leave my office and arrive on time.
First Thing when you start your day
Whenever your day starts (mine is usually 4 AM) resist the urge to jump on email or social media. Put your cell on DO NOT DISTURB. Now get to work on your To-Do List. Take time to complete items that can be done without email and phone-usually marketing, blogging etc.
The exception to NOT checking email is if you are expecting a contract as contracts always take precedence. Do not open every email but take a quick scan to make sure that highly important items are taken care of.
Morning
Your concentration, will power and discipline are always best in the morning. I usually make sure if I am doing a financial analysis on properties that I do this in the morning. This is always the best time to knock off the to-do list.
Late Morning-Noon time
Usually when I need to come up for a bit of air, maybe a snack or cup of coffee; I get up from my desk and take a minute. Now, it is a good time to evaluate or even reprioritize the rest of my day. Have I completed the high priorities?
If I have the day under control, this is the time that I look at market items or industry news. Keeping the day organized will let you have the time and energy to take on the unexpected items that suddenly become urgent.
Afternoon
I always put tasks in the afternoon that do not take as much energy or perhaps not as much concentration. It’s a great time to answer all phone calls, emails and texts. Social media takes this time as well.
If the To-Do list has been knocked out or completed as much as possible and you are looking for ways to make your day more productive make calls to your data base or polish your marketing. Prepare for appointments, etc. In the professional world, the successful Professionals do not use the task list completion as the end of the day.
Late Afternoon/Evening
Have a quitting time! You may still take phone calls or check emails. Before you wind down and compete your day-take a minute to go over your tasks one more time to make sure that you have completed all that you wanted to or needed to.
Remember to add your personal time or family time as actual appointments on your calendar! You are not effective unless you have true and enjoyable down time. Someone said to me recently, who will be at your funeral? Prospects or family? This is not to end this on a negative note but to help you stay focused on the items that are important to you!
Tag Archive for: Gerchick Real Estate
"Make the Market WORK For You"™
"Make the Market WORK For You"™
