All Forum Posts by: Giovanni Isaksen

Great podcast @Joshua Dorkin and @Joshua Dorkin !

Two great takeaways from Ken on the podcast:

1. It's hard to understate the importance of having a good property management company on your team; A) because it will help you sell the deal to lenders and investors B) once you buy it they have the job of turning the possibilities into real cash flow.

2. Ken has a list of over 500 accredited investors to call on for his deals that he built up over the years. There's no better New Years resolution than: Grow my list of accredited investors this year.

If you haven't heard the podcast I highly recommend it. If you haven't heard the podcast and have commented on it I recommend saving the digital ink and trees until you have. ;)

Just this shot of the dining room alone tells you that there's a fortune of antiques there:

Hi @Carolina E., glad you enjoyed the article. The apartment is in Paris. The actress who owned it left in 1942 before the Nazis came but continued to pay the rent until she passed away some seventy years later, even though she never returned. It's really worth looking at the pictures on a large screen since it's an amazing time capsule. The painting of her by Giovanni Boldini is beautiful, and who can't resist a guy named Giovanni!

Ask and you shall receive- Was just on the Institutional Property Advisors - Marcus & Millichap Research call who shared this chart of the top and bottom 10 markets for 2014 completions forecast and the percent of current inventory that the new completions will represent:

So for those 20 metros we can do a little math; dividing the number of completions by the completions as a % of inventory to get the size of the market and then match that against the number of permits from above to get a sense of what's coming in terms of new supply. It's interesting to see that while NYC's 8,800 new units will be 3.7% of the 238k of the apartments in that market but Houston's 10,900 will barely move the needle, 1.8% of the 605k units in that market.

Sean Breslin, EVP at Avalon Bay (one of the large apartment REITS) who was also on the call said that one dynamic that they really look at when selecting markets is job growth vs. new supply and sure enough M&M Research had a slide on that too:

The rule of thumb that you hear from the institutional guys is that on average it takes about 5 new jobs to fill a new unit. You can see that play out by looking at Austin which is projected to have only 3.5 jobs per new unit with vacancy climbing a full 1% while Houston with 10.2 new jobs is forecast to have vacancy fall 10bp. There are many markets that seem to buck that trend as well like LA with 15.8 new jobs per unit but vacancy rising 40bp. That says two things I believe; one, that each market can have its own dynamic and ratio and two, that you probably have to watch the trend in this ratio over a longer period than just one year.

BTW if these charts won't zoom enough to be readable shoot me a message and I'll send them to you directly. There are more great charts from this presentation as well as from the JPM Big Book of Charts that I'll be posting about later on the Ashworth Partners website so check there Friday for the full update.

Axiometrics posted their latest chart of multifamily permits for their top 40 metros- it's good to know how much new competition you'll be facing. Their chart also shows the job growth for those areas. Theses are two critical statistics for apartment market selection and investment decisions. The piece missing is what percent of existing stock the new permits represent, you'll have to find the total size of your market from other sources to complete that calculation.

See the whole Axiometrics report here: http://bit.ly/1dWjEUX

Good hunting-

A friend on another site shared this link with me of an apartment that had been left undisturbed for 70 years- http://bit.ly/1aCJNn5

Good hunting-

As others mentioned IRR measures the return on an investment over its complete life; purchase, operation and sale. It is used to compare projected returns on different investments or in the case of private equity to demonstrate that the projected returns are high enough to satisfy their investors.

There are whole threads on CRE forums about whether IRR or NPV is better for different types of real estate investments but the two are connected: The IRR (as a %) is the discount rate in a NPV calculation that returns a zero value.

I highly recommend reading Frank Gallinelli's book What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures to get a solid understanding of how to measure real estate returns. Frank is a member here and you can get his book on Amazon: http://amzn.to/Zv0Zph

Good hunting-

The NAHB's Eye on Housing has a new post on the Cost of Constructing a Single-family Home in 2013. In the post is a table of cost items that go into building and selling a new home based on the survey sent to their builder members (see chart below). The first thing you see is that builders don't make very much for all their hard work but the chart has a number of very useful items for any investor in the single family sector.

First is that both the 'soft' costs of sales and the 'hard' construction costs are broken out by % so they are easily compared to houses of different sizes and price ranges. How do they compare percentage wise with your rehab costs and results?

The second is that there are a lot of soft costs that should be tracked, even if you are performing the function yourself for 'free': Financing cost, marketing, sales, overhead and of course profit. If you'd like to someday be the owner of your company instead of chief cook and bottle washer, eventually you will have to hire someone to perform these functions so the sooner you track them as cost items the better.

The third is that the NAHB's eight divisions of construction cost breakdown are very useful because they follow the general order a house is built in and make it easy for field, office and supervisory personnel to code expenses properly. If you are in the single family construction or rehab biz you know what a pain it can be to get your people to code expenses properly so that as the owner you can tell where you're making money and where you're not (ask me how I know about this).

There are a couple other columns that would be helpful to have on the chart: the numbers broken out by square foot and the soft costs as a percent of the hard costs. The soft cost % of hard costs would help figure out what the markup for the hard cost line items should be. I'm an apartment guy and not in the single family biz but you could copy the figures to a spreadsheet and add those two columns very quickly. You could easily set it up so that when the square foot size of the house was entered it would display the costs for each line item.

Think how useful that would be if the chart had your costs built in instead of just national averages!

See the complete NAHB post here: http://bit.ly/1dJBxWT

Happy 2014 everyone and good hunting-

@John D.

How familiar are you with negotiating commercial leases? Medical building leases? And as @Nicolas Gonzalez points out the TI (tenant improvements) or uplift costs for medical offices can be pretty high. Based on those, working with a commercial broker who is experienced with this type of property would help avoid a lot of first-timer mistakes. I'm not a broker but in a specialty niche like medical it helps to have an expert on your team.

@Jay O. Ask for a current rent roll and '12 trailer' which is the last (trailing) 12 month's income and expense broken out by month.

As you say if they're cooking the books you might not be able to tell but that's a lot of work for someone to do. More likely is that they're paying some expenses out of their own pocket or doing work on the property themselves for free. I've seen where an owner pays the maintenance guy's salary out of another company to make expenses look lower.

Once you're under contract and in due diligence you should see the last two years' tax returns for the property and the bank statements for 2013. Look to see if the expenses match those on the tax returns and the income matches the deposits on the bank statements. These two should be on the list of due diligence items required in the purchase agreement. If they resist it's a deal killer but you can soften the demand by telling them the bank requires these for loan underwriting.