Multi-Family Investing

Transcription

1 Multi-Family Investing SM Copyright 2011 Keller Williams Realty, Inc. 1

2 Presenter, Team Leader Gina M. Palumbo Broker-Associate NY-NJ Managing Director, KW Commercial Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ ext

3 Glenn P. Godart DMD Realtor Associate Healthcare Specialist Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ ext

4 Phillip H. Sorace Realtor Associate Financial Services Specialist Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ ext

5 Introduction In this course, you will learn the following: 1. Market Overview 2. Types of Multi Family Properties 3. Thinking CLEAR LY 4. Pros & Cons of Investing 5. Five Potential Pitfalls 6. Analyzing the Financials 5

6 Market Overview HOT Commodity High demand due to mortgage crisis and troubled economy Development trends due to desire for rateables Low supply Is a BUST coming? 6

7 Types of Multi-Family Residential vs Commercial Duplex, Triplex and 4-Plex Properties 5+ Unit Properties Mixed Use 7

8 The Duplex or Tri-plex: Residential Is it legal? Great for owner-occupant or 1 st time investor Best with separate utilities Clarify parking spaces, use of yard, landscaping, snowplowing Spreads risk 2-3 duplexes vs. 1 multi-unit 8

9 The 4-Plex: Still Residential Larger investment, but larger cash flow, too! Advantages of economies of scale - 1 front door, 1 roof, 1 yard to mow Typically legal and originally built as 4 units Most 4-plex properties are older Requires more time and management Limited amenities especially when compared to larger complexes 9

10 5+ Unit Properties: Commercial Commercial Financing min 25% down and slightly higher interest rates Commercial grade mechanicals = larger cash reserves Higher taxes, insurance, legal fees Property Manager almost a must required in some states Tenants tend to be less loyal 10

11 Mixed Use Properties: Definitely Commercial Retail/Office ground floor, apartments above Frowned upon for decades now IN Diversification is a good thing Lending is a bit more challenging Zoning compliance issues Environmental concerns 11

12 Thinking CLEAR LY Cash Flow Income must exceed expenses Leverage If the value of the property goes up, your LTV ratio decreases, you can refinance, gain purchasing power... Equity Equity is the appraised market value of a property minus the amount of the mortgage balance. Appreciation Neighborhood market trends, length of time the asset is held, improvements on the property, and the quality of tenants. Risks Variable Loans Vacancies Problem Tenants Changes in Neighborhoods Municipality and Government Rules and Regs 12

13 Pros of Multi-Family Cost per Door economies per scale Property Management easier to manage one building versus many Diversity more than one tenant = lower vacancy rates Financing conventional to commercial loans, favorable rates 13

14 Cons of Multi-Family Competition HOT commodity today Diversity pro and con putting all eggs in one basket Tenant Quality why are they renting in the first place? Higher Maintenance than other Commercial Properties 14

15 Five Potential Pitfalls 1. Underestimating capital expenses, repairs and unit turn costs 2. Assuming current unit rental amounts are at market rate 3. Overlooking key operating expenses 4. Neglecting to find the seller s motivation 5. Neglecting to review current residents and leases 15

16 Income Analysis 16

17 Expense Analysis 17

18 Property Cash Flow Analysis 18

19 Added-Value Analysis 19

20 Questions/Answers Thank You for the Opportunity to Share with You I Look Forward to the Opportunity to Work Together! ~ gina, glenn and phil SM Revision #X, 00/00/2000 Copyright 2010 Keller Williams Realty, Inc. 20