All Forum Posts by: Brad Hardy

Ramon- The master lease is a great tool to use to finance any income property. I focus on infill properties and I often find that my target properties have not changed ownership in 15 to 20 years. They typically have zero debt on them and are owned by individuals that are retired. Many of these folks get fed up with the pain of managing the properties or like one of the recent sellers I bought from, they want to travel or they buy a second home and can't devote as much attention to the property(ies) as they once did. A master lease is a great way to give the Seller a safe income stream without the hassle of the management and attention. It also does not show up as a liability on your balance sheet like a loan does. A master lease is also a good way to control a property in a market you suspect may have a significant amount of appreciation in the short term. You just need to make sure your purchase option price is reasonable. If you can structure a two or three year term you may be able to operate the property at "break even" plus a management fee for your time until the end of the term when the property may have appreciated well above the option price. The great deal here is that if the market has gone down or is stagnant you just walk away and the owner gets the property back no harm no foul.

This is a very basic spread sheet I have used to keep track of some recent rehabs. It allows for tracking estimated cost and actual costs as you complet each line item. Every project is unique so there may be some items not present and/or some items that are not necessary. Note that some of the formulas are not active.

I asked the question specifically because I recognize the distinct difference between commercial and residential. I have a very deep background in commercial and shallow in residential. I also thought it could benefit the forum to see the difference.

That's about a 40% annualized return on investment. Obviously some of the upgrades such as HVAC and Dishwasher would be depriciable assets that would need to be replaced again at a later date.

I have dealt in commercial properties in the past and we typically do not do any updating to the space as odds are the next tenant may not be able to use them so we need a much more aggressive pay back period.

Thanks for the input.

I believe I can push the rents in my 1 BR units if I put some dollars into them. Currently have window units, no WD connections, no dishwasher, basically not updated. They stay rented due to the high dollar area they are in. What type of return do you fellow investors look for when determining if you want to spend money updating your properties ?

One final word from this respondent on cap rates. I think we all can agree that cap rates are one of many methods of evaluating a property. Different cap rates apply to dfferent types of properties and different situations. If cash flow is your gig then MikeOH has the right answer here. I would be willing to accept no cash flow if not negative if I have a property that will be re-developed in a few years or that I have leases rolling and I can push the rents. In the case of pushing the rents I am adding value and will be selling the property. I have no idea what interest rates will be when I finish stabilizing the cash flow of the property but cap rate is not affected by interest rates. Next buyer will most likely use cap rate to base heir purchase price and the banks appraiser will most likely use cap rates to determine values. If the buyer is looking at cash flow only he is not my best buyer b/c he is bottom fishing and in a solid real estate market the bottom fishers are normally buying properties in declining areas of town that have little to know chance for appreciation. The days of rising tide floating all boats is over so to make the real dollars you must create the value yourself. Cash flow is great but you are only a couple of unexpected capital improvements away from a mediocre if not negative return.

Typically the buyers that buy on cash flow alone and ignore cap rates are the same buyers that don't look at IRR either. Making $25,000 profit on a 5 year hold is not my idea of creating personal wealth which I believe to be all of the members of this forum's goal.

Cap Rate is absolutely an important consideration. The investors that make the most money in our business are the ones who use leverage. From the small time guy to the institutional pension fund leverage is the key to creating the most equity quickly. Since the debt markets are dynamic in nature as related to interest rates and debt structures cap rate is the one constant that can be used as a guide to compare the deal to current demand. I agree that the final calculation needs to be return on cash in the deal and that return must be positive but cap rate is still a necessary guage.

The answer to your question lies in the amount of buildable area you can get on the lot. Assuming you have a solid market for townhome product you can get a very solid guage of the potential profits in this deal. A standard width for a well laid out floor plan of a typical town home is 24' to 30' which means you should be able to get 3 units on the site, you have to allow for an access drive to the rear parking/garage area. Assume your cost to build at $100/sf at an average unit size of 1800sf you will have a basis of $133/sf. If you can't see your way clear to a gross sales price of at least $176/sf it's not worth the risk. Based on your other sales prices in the market it does not sound like your deal will work. You would either need to build a cheaper product or find a piece of land in an area that commands stronger sales prices.

Also, urban re-development property is rarely evaluated in $/acre.

I have only been able to find older reviews for this software and they were very harsh. Is the 2.0 version any better ? The main gripe seemed to be with the inability to export accounting information to Quickbooks. The price of the product is so cheap I could pay a book keeper to input the summary numbers off of the resports.

I am purchasing 75 small 1-1 units made up of 14 diff 4-plexes all in the same neighborhood. This solution seems like a good value.

Any ideas ?