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One of the very real frustrations as I sit with my Buyers or Sellers is the Client that “thinks” that by squeezing every last drop of blood from the other side is the way to win the deal.  I usually do not work over a long period of time with this type of Client. While I certainly want to obtain the best property that fits the needs of the Investor, there are ways to go about it that can make the experience of investing both successful and a pleasurable experience.

Years ago, too many to count I sold single family homes.  I learned something way back then. If a Buyer grinds the Seller for everything, the Seller will probably leave the property without cleaning it and will take very LAST garden hose simply on principle. It is the same for investment properties.

Many Buyers think that if they can”get” the deal for 10K lower that they are in a winning position.  Hardly ever is this the case.  Figure out the payments on an additional 10K and then decide if you want to go into an adversarial position with the Seller from the get go.

Here are some thoughts on this:

  • What if you need a few days of an extension? If the Seller is already feeling taken advantage of, you may not get the extension and lose the deal and possibly your Earnest Money along with any appraisal and inspection fees that you have already paid
  • Do you want the property repairs to be taken care of or a credit at close? Good luck with a Seller that again feels that you already “got the deal” Now instead of your down payment and loan, you now will be coming out of pocket for repairs.
  • What about the competitive market?  I am going into contract today on a listing.  I have two of my own investors that I know really want the property.  Last night I received two offers and the Seller is choosing one this AM.  My investors have lost out on a good building simply trying to figure out numbers.  I can assure you that not worrying over a 10K difference does not matter in the scheme of things.
  • What about your reputation as a Buyer. Do not think that if you submit low ball offers or offers with conditions that are unreasonable that Brokers do not speak with each other.

STOP paying for “COACHES or REAL ESTATE GURUS” . What a COMPLETE waste of money!  Use the money for down payments and get in the game correctly, I have investors or many I should say sometimes want to be investors that have to check with their coaches. By the time they have done this, the deal is gone.

Let speak about the Seller side of garnering the correct contract on your property.

Do you care if the Buyer wants something that you feel is unreasonable?  Depends (the famous real estate answer) on what it is.  A Seller should put themselves in the Buyers seat and see it from their perspective.  If the Buyer can only qualify to a certain amount, beware of this on any counters.  Understand that in multifamily, the Buyer typically does not go into the building until you have an accepted contract and escrow is opened.  If you are presenting that the building is well taken care of, that should be the situation.  If it is not, be prepared for a price reduction or a credit at close.  If the Buyer needs you to cover closing costs be aware of this as well.

However, as a Seller remember that a bird in the hand is better than nothing.  So if you get a reasonable offer, take it.  The grass is not always greener on the next deal.

Like a Buyer who is a “low ball’ Buyer, you can gain the reputation of a Seller that is impossible to work with.  If the Buyer needs a few days of a timeline extension for a good reason, give it to the Buyer.  After closing if the Buyer needs questions answered-help them.  What goes around comes around.

Also, you never know if this Buyer will come back today or even at some time in the future to buy another one of your properties or MAYBE you want to buy one of theirs?

It is a small world in the world of Real Estate Investing.  So let’s go get the deal and have some success at the same time!

Remember that I answer my phone and feel free to call me! 602-688-9279.

Linda

Yesterday, I went to a property inspection on a listing that I have.  I was the first person onsight and the Buyer (whom I did not represent) walked up and his first words were “So I finally get to meet the Queen of Fourplexes!” His second was “What a great website!”.

I have worked hard to gain the reputation of the “Queen of Fourplexes”. In 2006 I was with RE/MAX Commercial. I was number two in the ENTIRE world for RE/MAX that year and all I sold was fourplexes.  I missed being named number one by $30,000.  Of course they do not tell you this until you have received the award.  I would have bought a condo myself.  The next year I was again awarded the very highest honors from RE/MAX.

In the 23 years as a Broker, I have learned what works and what does not work in selling properties.  Of course, it goes without saying that answering my phone makes the biggest difference.  So many agents never answer their calls.  I see in the private remarks of listings-don’t call just text! I wonder if the Sellers knew that their agents put this in or even worse NEVER return calls or even emails-would they even hire the agent or FIRE them and they should be fired for this attitude.

When I work with a Seller to list their property, I do so many items in preparation.  First, I actually drive by the Property. There is nothing in Real Estate as “putting your feet on the dirt”.  I want to see improvements in the area and what is going on. I want to see the condition of the exterior of the property.  My recommendations to the owner for work that needs to be done is the difference between a sale and the price that the property sells for. This is the easy part.

I also want to walk the interiors of all units.  The worst thing that can happen is that you get a contract and when the inspections happen, the deal falls apart because we were not prepared for whatever is behind the closed doors.

I absolutely hire my photographer to shoot professional photos. I am paid to do a good job and professional photos make all of the difference. This means that the property needs to be made ready for the photoshoot.  Landscaping, moving tenant items and any repairs completed.

On the back side of the listing, I am known for supplying all due diligence up front to potential buyers.  NONE of us needs practice in writing contracts.  Let’s get the information in the hands of the Buyers or Agents.

I have agents look for my listings as they know that they can get all of the information upon front and make educated decisions about the property.

The list of items that I request from the Seller can be frustrating for the Seller.  However, without it I cannot do my job.  Having the information I need is critical to selling the property.  The faster I get the items, the faster that the property will sell.

I list properties on approximately 30 different websites.  All of these take a great deal of time to maintain.

An important fact is that I also update current rent rolls and year to dates on a monthly basis.  Again, the difference in Brokers.  Again, I need this information from the Seller or their Property Manager monthly.

When I list a property and IF I get all of the information that I need from the Seller, it takes me approximately 4 hours to completely “bring” up a listing.

There are many other factors that go into selling but the preparation done properly will hasten the days of market for the Seller!

Remember that I answer my cell phone 602-688-9299

Please call me if you have any questions!

Linda

So I just had a phone call from a person that wanted to offer on a proerty that I had listed. Guess what? I am not kidding, the Seller about 30 seconds before signed the Purchase ad Sale agreement.  This means that it is an accepted offer and the property is considered “in contract”.

In the Phoenix Market and frankly in any other market it is important to get the contract accepted.  It is not that you have all of the information, it simply means that you have the property under contract.  I can assure you that by the time I request all of the due diligence, in this market the property will have gone to contract with someone else.

I am pretty good at being able to estimate the cost of running the building-stablized.  I also work with Property Management to know what the rents can or should be.

As far as the condtion of the interior (as we rarely get to see interiors) this is often a negotiated factor after inspections.

Remember that you also have an apprasial condition in the contract as well.

The way that I write a contract, we make sure that you have a due diligence period so that you can do your analysis of the proformance of the property.  Remember until we get past the due diligence phase of a contract, it really is all paper.

I never want someone to CLOSE on a property that is not right for their needs but without an accepted contract, we will never figure this out.

Do not think that low ball offers work in a good market.  They DO NOT!  Remember you still have the apprasial contengency.

Real Estate is location and pick you price range and location.

Here is something else that is non-negotiable. You must have a proof of funds for either the purchase amount (if cash) or for the down payment.  In addition, if you are going to finance part of the purchase ABSOLUTELY need to be prequalified.  Contracts are not worth much if there is not one or maore of these items in place.  Today alone I received two offers on properties and niether one had a proof of funds (both cash).  I immedaily sent an email to the agents for the POF and in both cases received it back in minutes.  Agents and Investors know that they need this piece.

Off Market Is not a deal as many think. Who cares if it is an advertised listing or an “Off Market”. If it is on the MLS for expample you are actually more protected legally as Realtors have rules that govern.  I have bought off market and while we did the best due dilligence possible, once we closed there always seem to be more hair on the dog so to speak.

I promise my clients that if we write on a proerty and it is not the right one that they will have the ability to cancel during the Due Dilligence period.  Please read my past blog on Critical Dates Letters as you will agian see how important that these are.

Stay tuned for more Broker’s Advantage Blogs next week.

And remember that I answer my phone.  Cal me 602-688-9279

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

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:

  1. Date
  2. Tenant name
  3. Effective Date of Lease
  4. Expiration or Month to Month
  5. Security Deposit (both nonrefundable and refundable and these need to be stated)
  6. Market Rent
  7. Amount of Rent
  8. Rental Sales Tax column and who pays it
  9. Additional fees (Pet, Parking and Storage as an example)
  10. Total Monthly fees Due from Tenant
  11. Date last paid
  12. Any balances due from Tenant
  13. 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

Businesses make promises to its customers.  A brand promise spells out what customers can expect from the organization’s product or services.  Those promises are communicated verbally and in writing in a multitude of ways every day.  For example, a company’s website or app lists details about the products or services.  Marketing materials such as flyers, brochures and ads tout visually and in writing what is special about the company’s offers.  Employees talk up the organization’s purpose.  Signs scream the business’ intent.  The mission statement communicates the company’s promises.  So do corporate filings for publicly-traded entities.  And Contracts and Sales Agreements spell out in legally-binding detail the particulars of the brand’s commitment.

That is just the tip of the ‘brand promises’ iceberg.  Brand promises are also communicated through professional oaths as well, like a physician’s Hippocratic Oath to “do no harm”.  Attorneys take an oath when they are admitted to a State Bar Association. And CPAs take an oath after passing the exam.  For example, the North Carolina CPA oath says:  “I will support the laws and regulations of the State of North Carolina and the United States. I will perform my professional duties to the best of my ability and abide by the rules of professional ethics and conduct; and I will uphold the honor and dignity of the accounting profession by serving with integrity, objectivity, and competence.[1] That communicates what a CPA in that state has committed to do. That professional designation implies brand promises to clients.

There are a myriad of other actions and representations that spell out what a brand pledges to do or provide for its customers.  Those promises are sometimes legally-binding and ethically-binding, but they are always socially-binding.  There is a social pact between a seller and a buyer based, in part, on the brand’s promises.  Companies are expected to live up to their brand promises.

For example, for many years Bounty paper towels proclaimed that it was the “quicker-picker-upper” in its ads and on its packaging.  Introduced in 1965, this Procter & Gamble brand touted fast absorbency as a key selling point.  In 2010, they changed their brand message – and thus their overall product promise – to say the “clean picker upper”.  The package also says “One sheet keeps cleaning” and, on the back of the wrapper, it says “thick and absorbent Bounty helps you clean up quickly and easily, so you can get more out of each day.”  Procter & Gamble’s marketing team felt that consumers wanted a competent clean they could trust on surfaces their families encounter every day so their brand’s promise shifted to a “functional benefit” rather than how fast Bounty could pick up spills.  Bounty promised that a single sheet of their paper towel was strong and absorbent enough to get surfaces clean. The subtext was that they were promising to be cost effective for frugal shoppers who watch how many paper towels they use each time there is a mess that needs to be wiped.   And, for the most part, Bounty is a solid brand that has lived up to its promises.  But, what happens when a company fails to live up to one or more of its brand promises repeatedly?  Routinely?  On a regular basis?

Do Companies break promises regularly?

In a 2001 Gallup research and development survey of more than 3,100 customers, less than half of current customers felt that the brands they use keep the promises they make.  Specifically, just 38% of U.S. bank customers felt that their bank always kept its promises, while only 31% of auto owners felt that their car’s manufacturer always kept their promises, and a mere 22% of the previous year’s airline customers felt that the airline they flew most always kept its promises.[2] So, sadly, customers have become accustomed to companies breaking promises.  That may be, in part, because only 27% of employees report that they always deliver on the promises they make to their customers.  So most companies break brand promises and their customers know it.

Of course, no company is perfect because companies are comprised of people, and people are not perfect.  To err is human.  So, it is understood that brand promises are sometimes broken unintentionally due to human error and because of issues beyond a company’s control.  For example, airlines cannot control the weather but they take the blame for flight delays due to ice, snow, hail and lightning.  Also, logistics companies Fed Ex and UPS deliver nearly 6.5 billion packages a year, 99% of which are on time and undamaged, but some packages get lost or damaged or both.  It happens despite massive, intricate systems that protect against such errors.  No company is perfect and none gets it right 100% of the time.

That said, every organization should be committed to doing its level best to uphold the pledges it makes to its customers.  But, as the Gallup poll indicates, many companies aren’t doing that.  So, what happens when companies regularly fail to live up to the promises made?   After all, if most companies are breaking promises and people expect it, is that really a problem?  Simply put, yes, it is a problem in the way that a ticking time bomb is a problem.

Several things that happen when a company breaks its brand promises.

  1. Customers are disappointed.
  2. Customers feel disconnected from the company and its employees.
  3. Customers learn not to trust the brand.
  4. Customers feel disrespected.
  5. Customers no longer feel a sense of loyalty to the brand.

When that happens, brand dismantling begins.

What is Brand Dismantling?

Brand dismantling is what happens when a company regularly breaks its brand promises.  It can happen to any brand that consistently or cavalierly fails to deliver on the commitments it makes to customers.  So what exactly is brand dismantling?  It is the corrosive and ultimately destructive effect that broken promises have on the strength and stability of a brand.   Sometimes the effect is slow and is not felt right away.  Over time, customers slowly reduce their business or remove their business altogether, taking with them friends, family, and colleagues.  The attrition is like a slow leak.  In the case of a company that sells a product, customers might start trying competing products in search of one that is better.  Or, if the brand promises broken were by a company that provides a service, customers might start asking for references to other vendors.  The decline happens bit by bit.

However, thanks to social media, brand dismantling is happening more quickly now than ever before.  Betrayed customers not only suddenly and abruptly disappear — taking friends, family, and colleagues with them – but they also take people they don’t personally know but are connected to through social media.  The bigger the person’s social media platform and megaphone, the more devastating the impact to the company.  Broken brand promises can destroy a company with alarming speed, especially when one tweet has the potential to be retweeted ten thousand times over and viewed by over a million people within a matter of minutes.

Case in point.  Chipotle’s brand promise is that they make food with integrity.  Their entire brand was built on the promise of serving fresh, local food that is ethically grown and locally sourced. Their website even proudly claimed that the company used only vegetables grown in healthy soil.   So, it was more than a shock when hundreds of consumers across 13 states were sickened after eating contaminated food from Chipotle in 2016.  The news spread on social media like wildfire.  It sent the company’s stock, which had hit a record high in 2015, spiraling downward 40%.  It also launched a federal criminal investigation because Chipotle could not identify the source[s] of the contaminated ingredients that went to stores at specific times.  They broke brand promises by having an outsourced supply chain, which meant they lacked end-to-end visibility of the food from the source to store delivery in the chain.  This allowed the contamination to spread.  The lesson?  Be careful what thy promises to thy customers.  It wasn’t just that they made hundreds of customers sick, it is that their main brand promise had been badly broken and customer trust was crushed.

Though scarce, trust in brand promises is universally a top priority for consumers in determining whether to do business with a company.  That trust is in very short supply, and it cannot be bought, stockpiled or artificially made.  It must be earned by organizations through their actions daily.  It is not something that is ‘one and done.’  Consistency is a key factor in gaining and keeping consumer’s trust in a brand promise. It is not about fulfilling the promise once and moving on to the next exercise, effort or engagement.  Only routinely kept promises will nurture brand reputation and generate customer loyalty.

Over the next few weeks you will see Blog Posts not only from me but from our Referral Partners-HIGHLY EDUCATIONAL in our world today!

As always please let me know if you need to speak to me!  I am always available!

It’s finally possible for self-employed borrowers or independent contractors who have difficulty documenting their income to actually get a stated income loan to buy a non-occupant property for investment purposes.

The “debt-service-coverage” loan program helps these investors, house flippers and landlords who have multiple expense write-offs on their tax returns to buy investment properties without having to document their income.

The new option – use the anticipated monthly rent as income to qualify for the loan.

No Income Stated or Verified

If you have been aggressive with deductions on your tax return but have adequate cash flow, this type of loan may be for you.

The debt coverage ratio measures the ability to pay the property’s monthly mortgage payments from the cash generated from renting the property.

Lenders use this ratio as a guide to help them understand whether the property will generate enough cash to pay the mortgage expense.

The debt coverage ratio is calculated by dividing the property’s month net operating income (NOI) by a property’s monthly debt service. The monthly debt service is the total of the mortgage principal and interest payment, taxes, insurance, and any HOA fees.

Investors can qualify if the net operating income from the property is equal to or greater than 1.0 times the monthly debt service.

So, if you have a property that can generate $2,000 per month in rent, investors can qualify with an “all-in” mortgage payment of $2,000!

Debt Service Coverage Ratio (DSCR) Investor Loan

  • Loan-To-Values up to 80%
  • Credit Score down to 600
  • Qualification based upon cash flow of subject property
  • Interest only option available
  • 5/1, 7/1, and 30-year fixed options available

Non-Owner Occupied and Investment Purposes Only

This is only for Non Owner Occupied properties for investment purposes.  You will be required to sign a statement that states you live in another property that you own.

Please do contact Tom Bonetto for more specific information regarding qualification!

Here’s the link to the article: https://lendingcoach.net/debt-service-coverage/