Kyle Koller

Archive of Kyle Koller's Articles

Kyle is a real estate investor and a consultant for Epifany Properties, a company that offers the full gamut of services any Real Estate Investor would need to include investment analysis, buyer representation, portfolio management, property management, sales and syndication.

Kyle has written 16 article(s) for the BiggerPockets Blog.

Real Estate Investing

Real Estate Depreciation: A Deeper Look

by Kyle Koller | November 23, 2009

One of the many benefits of real estate investing is depreciation—the loss in the value of a building over time due to wear and tear, deterioration and age. Depreciation can only be applied to the building, not to the land. After all, land does not wear out over time. Luckily for real estate investors, building [...]

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Real Estate Investing

Compounding Gains: Optimizing your Money’s Growth

by Kyle Koller | November 16, 2009

There are many savvy real estate investors out there that understand how commercial and residential income properties operate. They can spot value-add opportunities a mile away, and they have the team necessary to implement them. They are confident that at any given time, they can find a real estate investment worthy of pursuit. They faithfully [...]

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Mortgages & Lending

Loan Characteristics and Their Effect on Your Prospective Investment Project (Part 2)

by Kyle Koller | November 9, 2009

In my last article, I discussed how lender recourse, prepayment penalties, a loan’s assumability, and fees and costs affect a real estate investor’s strategy. In this continuation, I will explore several other loan characteristics such that you can more successfully plan your next investment project. Fixed Periods Many commercial loan products offer fixed interest rates [...]

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Mortgages & Lending

Loan Characteristics and Their Effect on Your Prospective Investment Project (Part 1)

by Kyle Koller | November 2, 2009

Most real estate investors acquire income properties by obtaining a loan. As you are probably aware, maximizing loan funds (or OPM—Other People’s Money) maximizes leverage and, thus, maximizes returns. The right loan product can easily make or break a real estate investment deal. As such, exploring various loan characteristics is more than warranted. Lender Recourse [...]

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Landlord Tenant

Vacancy and Credit Losses: Unlocking a Property’s Potential

by Kyle Koller | October 26, 2009

Owners of income property understandably cringe when they hear the words “vacancy and credit losses.” After all, anything that negatively affects net income is cause for distaste. Yet, vacancy and credit losses remain a necessary and unavoidable cost of doing business. Being able to understand and differentiate between vacancy and credit losses is vital to [...]

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Real Estate Investing

The Needle in a Haystack: Shifting Through Income Property Listings

by Kyle Koller | October 19, 2009

Many investors have a favorite strategy for weeding through the numerous income properties on the market in their search of a solid investment. Some use the “price-per-door” as a benchmark. Others consider the “gross rent multiplier (GRM)”. Yet others are convinced that capitalization (cap) rates are the way to go.

Which evaluation tool is best?

Investors have asked me the above question numerous times. A more profound question would be, “Is there really a BEST way? Let alone a right or wrong way?” Let’s explore some of the common comparison strategies.

Price-per-square foot

This technique is extremely easy to apply. Simply take the building price and divide by the number of total square footage of improvements. Thus, a 12,000 square-foot property with a list price of $1 million has a price-per-square foot of $83.33/sq. ft. This can be a useful tool when comparing different properties in a demographic area. It is not, however, without its limitations. For example, this method does not take income or expenses into account. Evaluating a property exclusively with this method and you could find yourself money pit and you wouldn’t even know it.

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Real Estate Investing

Real Estate Syndications: A Deeper Look

by Kyle Koller | October 12, 2009

In my last article, I described an investment tool—syndication—and how one could benefit from its utilization. Perhaps syndicating sounds appealing and you would like to know more. If that’s the case, read on and dig deeper into the little-known world of syndication.

In case you missed last week’s article, a syndication is simply a group of like-minded investors that pool their resources together in order to participate in investments larger than they otherwise would have been able to alone. In real estate applications, members within a syndication take ownership of an income property proportional to their capital contribution. Thus, if a $100,000 cash outlay is required purchase a property and syndication member Bob contributes $20,000 to the cause, he will hold a 20% interest in the property.

How to take ownership in real estate syndications

The theory of syndication is easy enough to understand. Where things start to get tricky is during the formation of the legal entity. I will discuss some of the commonly used ones in syndications.

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Real Estate Investing

What is a Real Estate Syndication: The Basics

by Kyle Koller | October 4, 2009

In today’s society, the possibility of becoming wealthy exists but remains a lofty aspiration for most. While many have come to understand that real estate is one of the most effective mechanisms by which one can attain wealth, many would-be real estate investors are held back for one reason or another. If only there was a way such an investor could more easily cross the bridge into the wonderful world of real estate…

Bridging the gap

One viable option is to participate in a syndication. A syndication is simply a group of like minded investors that pool their resources together in order to participate in investments larger than they otherwise would have been able to alone. These resources may include liquid capital, expertise, project management, and a variety of other valuable things. Similarly, syndications come in a variety of flavors. Let’s look at reasons one might want to participate in a syndication before discussing the various types of syndications and common pitfalls to avoid.

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Commercial Real Estate

If Your Building is 100% Occupied, Your Rents Are Too Low!!!

by Kyle Koller | September 28, 2009

Income properties are, to many, the ideal investment. Not only does one receive rental income on a monthly basis, but he also gets to enjoy capital appreciation—or at the very least, a solid hedge against inflation. With favorable tax treatment throughout and available 1031 tax deferred exchanges, one would be silly to not at least consider real estate investment.

And so he does. Hypothetical investor Bob purchases his first income property: an 8-unit multi-family in sunny San Diego, California. He loves the fact that it’s in a great location, has a favorable unit mix, and there has only been one vacancy in the last two years—and that vacancy didn’t last very long. As far as Bob is concerned, he has made the perfect investment. How could he do any better?

Raise the rents!

Typically, investment properties in low-vacancy, heavily renter-occupied housing areas that incur vacancies about as often as the Chicago Cubs win World Series have one problem: their rents are too low. If the rents weren’t below market, they would incur significantly more turnover.

That’s the key word: turnover

Turnover is a good thing; vacancies, themselves, are not. What’s the difference? A vacancy occurs when a unit has been turned (i.e. “rent ready”) and it does not have a tenant, or a prospective tenant. Turnover occurs when someone moves out of a unit and another moves in.

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Housing

What Blockbuster Can Teach Us About Real Estate

by Kyle Koller | September 21, 2009

blockbuster video real estate The other day, I was preparing to check my email when a headline on Yahoo!’s homepage caught my eye: Tough Times for Blockbuster. As a fan of Blockbuster’s, I felt compelled to learn why so many of its beloved stores (between 810 and 960!) were closing. As it turns out, several of its stores were becoming unprofitable money pits, no doubt due partly to the success of online rental goliath Netflix and newcomer Red Box—the rental box company taking the nation by storm.

Needless to say, Blockbuster has had to implement several changes necessary to stay competitive in this ever-changing market. Like Netflix, Blockbuster has launched an online, mail-service component. Blockbuster has even started distributing rental box dispensers much like Red Box. The question remains: is this too little too late for the former movie rental giant?

What does this have to do with real estate?

The Blockbuster Saga illustrates how important it is for real estate professionals and investors alike to stay on top of current trends and innovations in the real estate realm.

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Taxes

Don’t Pay Taxes on Your Capital Gains (Part 2): 1031 Exchanges

by Kyle Koller | September 14, 2009

1031-exchange-deferred-taxes In last week’s article, we explored the anatomy of a 1031 exchange and the government’s reasoning for creating such a powerful tax-saving tool. This week, we’ll look at a hypothetical example such that we may more clearly understand how a 1031 exchange works. We’ll close by addressing some common concerns. Let’s get to it!

Ted’s First Investment Property

Ted understands the advantages or real estate investing and does everything he can to acquire his first investment: a nice little income property located at 101 Main Street. After careful analysis, he purchases it for $400,000 and pays $8,000 in acquisition costs. Over the next year, he operates the property as a rental—this is crucial because simply acquiring property for the sole purpose of resale does not qualify for a 1031 exchange. During this time, Ted replaces the roof and makes some other capital improvements totaling $15,000. He also takes a depreciation tax deduction of $5,333.

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Taxes

Don’t Pay Taxes on Your Capital Gains: 1031 Exchanges

by Kyle Koller | September 7, 2009

Most real estate investors understand the general concept of a 1031 exchange or, at the very least, have heard of it. Few, however, understand exactly what takes place within one of these exchanges and how powerful a tool it truly is. So let’s explore a subject that is close to everyone’s heart: not paying taxes on hard-earned money!

What’s in it for Uncle Sam?

IRS 1031 exchange So, why does the IRS Section 1031 like-kind tax-deferred exchange exist in the first place? After all, doesn’t the government relish every taxable opportunity? While the government is certainly not adverse to taxation, they also use the tax code as a tool, encouraging or discouraging certain acts they deem beneficial or detrimental to the economy. As it turns out, the private sector is pretty darn good at providing housing to society (a lot better than the government). As such, Uncle Sam provides various benefits to real property owners (mortgage interest deductions, real estate investment expense deductions, ability to depreciate, etc.).

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Commercial Real Estate

Increasing the Value of Multi-Families: Vending and Zone Coverage

by Kyle Koller | August 31, 2009

As investors, we’re always looking for ways to increase the value of our properties. Most of us are familiar with the more conventional ways of doing so: decreasing expenses and increasing income. What if I told you it was possible to increase income without raising rents or decreasing expenses? Let’s explore a few ways that is possible.

Increasing Value with Vending Machines

If you own a fairly large complex, it would make sense to install a vending machine. Assuming you’re an expert of your market, you could effectively target your tenants by placing products you know your tenants would want in the machine. The best place to put your vending machine is in an area that generates a solid flow of tenants; the laundry room or near the pool (if you have one and your property is located in warmer markets) are two good choices. Even modest vending revenues increase the property’s value significantly. Assuming the property is in a 6% Cap rate area with yearly vending revenues of $720, you would have increased the property value by $12,000! Not too shabby given our modest revenue assumptions.

Tapping rarer, but more lucrative, value potential

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Commercial Real Estate

Multi-Family Properties: Unconventional Ways to Increase Value

by Kyle Koller | August 27, 2009

As real estate investors, we know that the value of commercial buildings is determined by dividing its Net Operating Income (NOI) by its Capitalization Rate (Cap Rate). By definition, Value = NOI / Cap Rate. In other words, the property’s value is greatly magnified by relatively small increases in Net Operating Income. To illustrate, for a given Cap Rate (say 6%), every extra dollar in NOI increases the property’s value by $16.67 (=$1.00/0.006). In low Cap Rate areas like San Diego, that means there’s a huge opportunity to increase your building’s value dramatically!

Factors Affecting NOI

There are a number of obvious things one may do to positively affect the NOI of a property: raise rents, cure vacancy, decrease expenses. Well, what do you do if your building is 100% occupied at above market rents, and the property is so efficiently managed that you can’t think of a way to decrease expenses? Should you accept the status quo and simply keep up the good work? You could, but where’s the fun in that? You would be overlooking the unlimited number of ways to optimize not only your property’s NOI, but your returns as well.

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Foreclosures

Proceed with Caution: Low Prices Doesn’t Necessarily Equal Quality Investment

by Kyle Koller | August 17, 2009

RAMONA, CA - OCTOBER 30: A real estate for sa... The great real estate boom reached its apex in 2006—and then the bubble burst. More specifically, the single family home bubble burst. Now, for the first time in years, condos and townhomes are suddenly affordable for a lot of people in places like California, Arizona and Florida. Combine this with Obama’s tax incentives and you’re looking at a buyer’s market. While this is great for able and willing prospective homeowners, it could prove to be a trap for real estate investors.

“I’m buying homes for 50 cents on the dollar!”

The question on most investors’ minds is “has the market reached the bottom?” The definitive answer is that nobody knows. On the BiggerPockets.com bulletin, Joshua Dorkin posted a link that addresses this very issue. In the article, the author argues that there will not be a quick recovery to home prices. That may or may not be a true statement (although I’d bet he’s right), but home prices are definitely selling at prices half of what they were three years ago.

And therein lies the trap

Some real estate investors like to think that they are purchasing single family residences at steep discounts—“50 cents on the dollar!” But this begs the question: to what dollar are they referring?

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