Real Estate Packages

MAAP “Core Four” Pillars

Asset Class Summary

Bought at Auction

• Saves SO much time• Not shotgunning low-

ball offers• Short-sales take 2-3

times as long• Don’t have to get

money to the courthouse in 24 hours

Rehabbed

• Financing fix up• Not keeping crews on

budget• Try to get a contractor

to finish the job• Don’t over-improve• Don’t have to supervise

Tenants in Place

• Cash flow now• Most important tenant

is the first one• 12-24 month leases• Managers screen for

quality

Property Managers

• Find the best in the area• Does the heavy lifting• Day-to-day tenant

interface• On staff maintenance• Only paid when tenant

occupied

Melbourne Street, SLC

• Purchased in 1992 for $87,500– Rents $1,300– Net $1,000

• Cash on cash $12,000/$87,500 = 13.7%• 1996 appraised for $240,00• 2008 appraised for $390,000• 2012 worth $230,000

The Power of Leverage• Increases returns 3-4%• Allows buyer to secure double the properties• “Non-Recourse” lending • Based on the property only

– No application– No collecting from the borrower– Required financing if using retirement dollars

• Banks don’t like it – 1 national bank says they do it– Minimum loan sizes, deny deals for whatever reason

• Our vendors have it

How to value properties

• Property Tax notice• Values estimated by neighborhood area• Every 2-3 years

• Online Data • Zillow is common

– Pulls data from public records like property tax, or sales in area, not accurate, includes short sales and foreclosures

• Appraisal-best and closest

How to value properties

• Appraisers\Appraisal report– Comparable Sales– Income Approach– Replacement cost

How to value properties-Comparable Sales

Comparable Sales-subjective• 3 “like” properties sold in last 6 months• Distance within a mile• Adjustments for differences

– No garage vs 2 car– Covered patio vs no pation– Lot size– Number of bathrooms– Number of bedrooms

How to value properties-Income Approach

Value based on the income-commercial properties– Income approach-Melbourne Street, SLC• Net income $10,000• Divide by a common rate of return (cap rate)

• At 8%– $10,000\.08 = $125,000 value

• At 6%– $10,000\.06 = $166,666 value

How to value properties-Replacement Cost

• Replacement cost• How homeowners insurance looks at a property• $80 per square foot x square footage• Deduct depreciation• Value of lot added on

Melbourne Street SLC• 1600 sq ft upstairs x $80 = $128,000• 1600 sq ft downstairs x $40 = $64,000 totals $192,000

– Add the land

• Significant remodel creates “effective age” estimate

How do our vendors value properties?

• Cost to build comparison• Florida condos, what would I pay down the street• Instant equity

• Replacement cost-cuts out non-market type sales• How homeowners insurance looks at a property @ $80\ft• Replacement cost is a watermark for value over time.• If we can get a property in the $40-50\ft, it is a good price

Significant remodel creates “effective age” estimateChange out plumbing, HVAC, electrical, windows, kitchen in a 100 yr

old property, how old is the property?

Newer properties 10-14%

14.2% return Doubles every 5 yrs

Year 0 $60,000

Year 5 $120,000

Year 10 $240,000

Year 15 $480,000

Year 20 $960,000

Year 25 $1,920,000

Real Estate Returns HopeCan start with less money, same result

Returns safely secured

People understand the risks

Loans are repaid in 4-5 years

To compound, we need to reinvest the rents

Gives people returns high enough to get back on track

People understand the risks

18% return Money doubles every 4 years

Year 0 $30,000

Year 4 $60,000

Year 8 $120,000

Year 12 $240,000

Year 16 $480,000

Year 20 $960,000

Year 24 $1,920,000

Cornerstone of a portfolio

Ideal Portfolio Contents