How does cash flow effect owning a property?

Just because you have cash flow to cover your debt service and expenses, doesn’t mean that holding the property is your best investment strategy. The same reason you enjoy your property also makes it attractive to investors. The ability and the confidence that all your bills are paid, debt service is manageable, and you have some money in your pocket at the end of the month. My advice to investors is: The time is sell is when you don’t have to sell, this is the best time to consider selling, or at least marketing the property and command the best price possible…additionally this process helps you evaluate the market value for your property over and against your purchase in light of depreciation.

What does a CAP (capitalization) Rate tell you about property investment?

a. Literally tells you the effective rate, that an investment should produce. It is a percentage which gives you an estimate of the effective return on the entire purchase price that a property can generate.

b. A high cap rate indicates good cash flow that should be sufficient to cover all expenses and debt service on a property.

Should you sell your apartment complex?

a. Think about life without your property. You have the pleasure of the equity your property yields, on the negative side you have to deal with tenants and their troubles. Often, many of the negative circumstances related to multi-tenant investment falls on inadequate property management. Instead of wanting to get out, perhaps you could be asking: how can I improve my property management.

b. Is there an Opportunity Cost associated with owning your property? What is your exit strategy? Are you attempting to sell in order to move into a larger complex? Are you liquidating your assets because you know property management isn’t a good fit. Be careful: you never want to go into sell without considering what your plan is after you’ve sold.

How does the Sheehy Team Get the Deal Done?

a. Desperation can lead to bad judgment. Realtors can actually sabotage deals by putting unnecessary pressure on their clients and other agents, showing little regard for details, being ignorant of relevant laws and regulations – these are all symptoms of putting their own interest in the matter above their clients. The Sheehy Team is known for Getting The Deal Done precisely because that’s what we do, we are loyal to our customers interest and bottom line. We strive to do business in such a way that we empower investors with the confidence to do more deals. How do we do that?

b. Using our detailed systems as outlined in the Sheehy Team Playbook – Andy Sheehy has been investing in real estate for over 10 years, and typically advises client to 1) keep your day job, 2) build $100K in cash, and 3) plan ahead by anticipating your exit strategy.

c. Property Scouting Report – Once a property enters the MLS or marketing sites like OnStar® or Loopnet®, the price has already been inflated for low-ball offers, commissions, etc. Now, you have access to real estate deals that are for sale, but not on the market.

d. Laser Focus – The Sheehy Team is focused 100% on Multi-Tenant Investment Real Estate because we love analyzing property, helping properties owners figure out the highest and best use, and empowering investors with confidence to purchase real estate. We envision being the Texas Market Leader for buying and selling Multi-Tenant Property.

What are Capital Gains?

a. The profit you get when you sell a property above what you bought it for. For example, a million dollar property, held for three years and save any capital improvements, is sold for 1.2MM, your gain on your capital is $200K. Not to be confused with your return on investment, which factors in your debt service, or the amount necessary to secure the financing for the purchase.

b. Keep in mind depreciation: with our example, 2.5% each year for 3 years which comes to $25,000/year or $75K; this leads to your new capital gain of $275K.

c. Capital Improvements can add another wrinkle. Any capital improvements you choose not to expense can be depreciated as well over a period of years, rather than expensing it in any particular year. With our example, let’s say you add a roof with a total cost of $50K, effectively you paid $1.05MM for the property then you can depreciation the property from that point, which gives you a different number. Note on capital improvement depreciation: you can depreciate the improvement at a different rate than the property.

What are Property Valuation and Appraisals?

a. Usually a bank ordered report from an independent property assessor who is trying to answer the question of the property’s value. The lender wants to know that: should the purchaser fail to perform, can the property be sold to cover the loan? This is also valuable information to an investor who needs to consider whether it is worthwhile to invest in property that is selling for more than the appraisal suggests. Some things to consider when faced with this problem are:

i. Area Growth Potential – are you anticipating some new development or investment project that would increase the property or land value and warrant an offer above current market value.

b. As an investor, you might occasionally need to be aware of:

i. Income approach – looking at the financials, expenses, rents, number of units . Answering the question how much an investor might expect to return as in a 10% cap rate.

ii. Replacement approach –What would the it cost to build today? Back in a depreciation schedule based on how long it’s been in place.

iii. Comparable sales – What is the neighborhood selling for? They will look for properties in that area and hints