Rick M. Bean

There are no bang for the buck investments that exceed the return of employee training...and nobody does it as well as Grace Hill. This months session on resident retention should be seen by all of your multifamily staff. Best of all...its offered at no charge.

PRESENTED BY: Patty Morgan-Seager & Andrew Botieri
DATE/TIME: Wednesday, October 21, 2009 - 4pm ET, 3pm CT, 2pm MT, 1pm PT
SESSION DESCRIPTION: Showing clients that you appreciate their loyalty can make a tremendous difference in your resident retention efforts. But how, when your community's resident retention dollars have been reduced? Their panelists will share some great new ideas and proven techniques for "re-marketing" to your current residents. This topic is a crowd pleaser, so RSVP early to guarantee your spot!

COST: Gratis! Thank you to Spherexx.com, Welcome Home America and Multifamily Insiders for sponsoring October's chat event.

RSVP: Visit www.gracehill.com and look for the details of this event on their home page. Click the RSVP link to sign up and receive Chat Event Instructions. Then, login to Grace Hill about 10-15 minutes prior to the event and click on the Chat Room link, under the chat description, to be delivered to their Chat Room.
*Space is limited to 350 attendees in our chat room. Be sure to login to the chat room 10-15 minutes prior to the event.

Improve your profits!

Customer appreciation is the key to resident retention...and that's one of the keys to increasing NOI. The best way to increase profits is to buy right! Contact Rick Bean at: rick@rosecitycre.com or 503.577.1034 to develop an investment strategy that is customized to your needs.

One strategy of acquiring investment properties is to pool individual owner's equity stakes and take title as Tenants In Common, or a TIC. TICs feature an undivided unity of possession, but they may, or may not have unities of percentage of ownership, title, or time of acquisition and disposition. Upon the demise of a co-tenant their interest passes to their devisees/heirs, not the co-tenants. It is critical that an executed Operating Agreement be in place to define critical items including:

*Ownership percentage
*Conditions under which the property will be sold
*How distributions from operations will be made
*Rights and responsibilities of each investor
*How to handle cash calls, should they be required
*How individual TIC owners may dispose of their interest before the property is sold.

STRENGTHS INCLUDE: Pooling resources may permit the ownership of far larger assets than could be acquired individually, resulting in economies of scale for management and maintenance. The investor that owns a 10-plex can't afford MBO (Management By Others). 4 or 5 TIC investors that put that each contributed the same amount as the 10-ples owner could afford to have a live-in manager. Then the job becomes managing the manager...which is far less time consuming.

Overall flexibility. TICs permit owners to sell, encumber, or convey their interest without permission of their co-tenants. Depending on the structure of the Operating Agreement, TICs may permit General Partners to run the asset, allowing investors to have the benefits of owning an asset without having to be involved in routine operations.

WEAKNESSES INCLUDE: Litigation is more likely. Closings are more cumbersome. Coordinating items that require input from the co-tenants is more involved. People ask me if its really important to have a lawyer draw up docs for a TIC. I respond by telling them that, yes the first time they create a TIC they should consult an attorney...and every time thereafter. It is important to understand the actions you are required to take...and those you may not take...to avoid the creation of a security.

Note: The information contained herein is deemed accurate and reliable, but is not guaranteed. To assess applicability to individual situations please consult your legal professional. For the additional information about a highly respected Real Estate Law Practice contact me at: 503.577.1034 or rick@rosecitycre.com.

Call back the guys with the white coats...I'm not actually crazy.

Here's why: I believe that the best commercial investment brokers have their client's best interest in mind...but remember that a broker gets paid for closing deals...whether good for the client or not. Not every broker would tell their client: "That's a bad deal for you and we shouldn't accept it." Some brokers would defend their silence saying they were just giving the client what they wanted...even if they knew the deal was marginal. What the client wanted was a safe investment that cash flowed and had a good chance of appreciating over the long run.

The solution: CO-INVESTING

I strongly believe in this market, and that this is a great time to buy. The best time to buy in a long, long time. My response to put your money where your mouth is: My goal for the rest o is to not getf the year and beyond is to not take a dime from my deals at closing. Why? I'm so certain we're on the way out and up that I'm willing to leave my fee in the deal and co-invest. I'll put my money with yours and we'll prosper together! Think your broker got you a good price? Possibly. But what would the price and terms have been if his monetary future was impacted to same degree as yours? (Do you think its just a fluke that agent's homes sell for 15% above the market?) If you're not co-investing with your broker...maybe you should be!

To the naysayers...I might point out that the last indicator of a recovery to arrive is employment. Layoffs will continue even though economic output is expanding. It's unfortunate that the feel good part of recovery, (the part where our friends and neighbors get rehired) is last to arrive. Statistical data tends to run a few months behind the actual market. My guess is that we're already on the way out of this morass. This is a great time to buy...and those with significant equity may improve their financial fortunes by redeploying their equity now.

I have some target properties in mind! To get in line to co-invest: 503.577.1034, or rick@rosecitycre.com!

My friend Doug Foley, CCIM was kind enough to permit me to co-host a portion of the Northwest Real Estate Investor's Association (NWREIA) August Multifamily Focus Group on August 18th. I thought that a review of the basics might be a good start...so I included a brief overview of NOI, CAP Rate, and NOI, CAP, and NOI Multiplier.  While these are offered in the context of a multifamily discussion, they are basics that apply to all investment properties.

What is NOI?: Net Operating income

What does it measure?: Measures the revenue generating capacity from operations.

When is it important?: Two times: When you is sellin'...and when you aint. On a more serious note, NOI is the source of payment for debt service, and cash flow distributions to the owners.

What's the formula?: Current Revenue - Current Expenses (Exclude debt service, capital expenses.)

Example: Current Revenue, June 2009: $100,000.
Current Expenses, June 2009: $ 35,000.
NOI, June 2009 $65,000.

What is Cap Rate?

The capitalization rate is what the yield as a percentage of the initial investment would be in year one if you acquired the property all cash.

Why it is important: First "sniff test" investors use to check out an available commercial property. Measures the size of the revenue producing engine.

What is the formula? NOI/Sale Price = Cap Rate
Example: $65,000/$812,500= 8%.

What is NOI Multiplier? How much each dollar of NOI would contribute to value if property was for sale.

Why we care: Knowing how much each dollar on NOI is worth helps us evaluate the impact of incremental increases in revenue and expense. (Great for rehab/repositioning!)

What's the formula? Sale Price/NOI = NOI Multiplier
Example: $812,500/$65,000= 12.50 (Each dollar of NOI creates $12.50 of value.)

NOI, CAP, and NOI Multiplier Problems

Property X had the following revenues in 2008:

· Rent $122,500.

· Extraordinary gain: harvest lumber on property $25,000.

• Pet rent $300.

Property X had the paid the following in 2008:

· Utilities, taxes, management fees, etc. $48,000.

· Cap Ex: Completely rebuild lower parking lot $19,000.

• Re-stripe upper parking lot $125.

QUESTIONS 1 & 2 are based on the information above.

1. What was NOI?

2. What is the asset worth if we assume a 6.9 Cap% ?

QUESTIONS 3 - 4 are based on repositioning an 18 unit property we are buying for $1,200,000 at an 8 cap with a 5.9 % loan. Current Annual NOI is $96,000:

3. How much is each dollar of NOI worth?

4. How much more would the property be worth if we could raise the rents in 10 of the units $10/month? (Assume that a year has 12 months, all the units are increased at the same time for the full year...and that we could do this without increasing expenses...without any change in turnover.)

I have previously saluted Holly Bray of Love Funding as a real commercial lending pro. Below is an article she wrote that she wrote describing one of the most liberal multifamily loans on the market today...and with rates in the mid to upper five percent range. These are non recourse loans.

Submitted by Holly Bray:

With many lenders on hold, the topic of the day has been FHA.

The FHA multifamily loan programs have been in place for over thirty years. They continue to be used regularly and have closed as much as $8 billion a year in new business. With commercial lenders on hold there has been renewed interest in these valuable HUD multifamily programs. The following summarizes the 223(f) program.

The 223(f) program provides high-leverage long-term permanent debt to refinance, purchase, or moderately renovate existing apartment communities on a fixed-rate, non-recourse, assumable basis. The loan size is relatively unlimited and the properties can be located in any state, Puerto Rico, Guam, and the US Virgin Islands.

The property must contain five or more units and be at least three years old based on the final certificate of occupancy. (HUD recently granted waiver authority to the field offices through September 2009 to refinance younger properties that have stabilized.) Commercial space cannot exceed 20% of the total net rentable floor area or 20% of effective gross income, including a 10% vacancy allowance. Repair cost are limited to 1) $15,000 per unit in Portland, as adjusted to FHA's high-cost factor for the area; 2) a maximum 15% of "as-improved" market value; and 3) cannot involve replacing more than one major building component.

Borrower Advantages: 35-year amortization period; eligibility for both market rate, subsidized, and LIHTC properties; NO rent control restrictions, rental subsidies, or limitations on owner return; non-recourse; AAA credit enhancement with Ginnie Mae securitization.

Guidelines:

Term: Up to 35 years fully amortizing with level payments.

Loan Size: Unlimited, nationwide.

Loan Amount: Maximum 85% LTV for refinance and 85% loan-to-cost for purchase transactions. Maximum of 80% LTV for refinancings involving equity take-out.

DSCR: 1.17:1

Occupancy: Underwritten up to a maximum of 95%.

Interest Rate: Rate is locked with borrower's approval after issuance and acceptance of FHA Firm Commitment. Current interest rates are in the 5.50% range!

Prepayment: Negotiable. Typically a two year lock followed by 8% declining 1% per year thereafter. No prepayment penalty after the 10th year. No defeasance. No yield maintenance.

Escrows: Tax, hazard insurance and mortgage insurance premium escrows are required, as is a replacement reserve. If repairs are required, a completion escrow in the form of cash or a letter of credit may be required.

Other Features: The traditional sources of income such as laundry, parking and storage now include ancillary income such as forfeited deposits, pet fees, and the like. FHA requires an annual project audit. Surplus cash, as determined by audit, may be distributed up to twice a year. Davis Bacon wage rates do not apply. Critical repairs (life and safety) must be completed prior to closing. Non-critical repairs must be completed within 12 months of closing. Draws to cover reimbursement of cost of repairs are subject to a 10% retainage.

After execution of engagment letter, professionals will work closely with the client to expedite the application process and achieve MAP timeframes. An appraisal, Phase I Environmental, and Engineer's report are needed.

This is an excellent program and although it takes longer to process than either a conduit loan or a Fannie/Freddie loan the generous loan parameters make this the best long term financing in the industry.

To find more about this product call: Holly Bray - Love Funding - 202-887-1849. To learn about local area properties that this would be a good finance solution for...contact Rick Bean: 503.577.1034, or rick@rosecitycre.com.