Check out Robert Bach’s latest post on city rankings.  Where does your city rank….chances are…you can find it here…..cheers….rob

http://myemail.constantcontact.com/Ranking-Cities.html?soid=1102184413218&aid=h4SPz0bJUfE.

Me and Jesus....well...not really...at Compassion International in Colorado Springs

Greetings from Santa Barbra, CA….. rainy and gloomy….but the hope for sun tomorrow.

Anyway….

Here in CA to rub shoulders with the folks of Yardi Software and to checkout the sites.  The rain has not stopped me….

Before I arrived in CA….I was in Colorado visiting my mentor Wes Roberts.  So….I have been on a mini-travel marathon of sorts….next?  ….D.C.

Today’s topic is property management.  Specifically, hiring a property management company…..

Over the years, I have learned the hard way about property management.  In reality, good property management is difficult to find.  More specifically, “okay” property management is a gem if you find it.  I know… I know…I may be going a little overboard….but I digress.

So….I was thinking….what makes a good property management company (PM)…for both commercial and residential assets…..and here is my list….very short….but enough to give you some thought….

1) A PM needs to have a solid understanding of the asset being managed.  In other words, does the PM know how to manage a retail shopping center, or a large apartment complex, etc.  You see, just because a PM has managed an apartment before…does not mean he or she knows how to managed a 100 unit apartment or a 500 unit apartment.  Take a look at the portfolio the PM is managing currently and see where the PM’s experience is.  If you want a PM to manage your storage units and the PM’s experience is only in residential homes….you have a big red flag

2) A Good software system.  If your PM is using Microsoft Excel to manage a portfolio….you should run.  MRI, Yardi, etc….are great software programs that offer clients a lot of bells and whistles.  Make sure your PM is using solid systems because…PM reporting, accounting, etc…. is depending on it.

3) Turn-around times a.k.a., “make-ready” time is crucial. PM that are slow at turn-around times when a property goes vacant and the time it takes to get ready for the next tenant is crucial.  Whether you have a waiting list or no list at all….having units available quickly will help your bottom line.  Find out how fast your potential PM is turning things around by asking other clients what the turn-around time is.  If you hear ten business days…then that is too long.  One week is the most I can deal with.  I like to hear three days.  Obviously there are other factors that go into turn-around time…but the shorter the better.

Santa Barbra, CA

4) Communication. Another difficult thing I have learned is if you are having a hard time connecting with the PM….you are probably getting screwed.  No return phone calls…..reports have not shown up……etc.  Especially for long-distance properties.  Talk to the PM’s other clients…ask what the communication is like.  Knowing the communication process and how others perceive it will save you a lot of headaches.

5) Network.  Talk to other owners about which PMs they use.  Ask a ton of questions…how long?  What types of assets do they manage? etc.  I always like to get a perspective from other investors and see who they recommend.  Does it always work?  No…but….it is better to get a short list from people you know vs. starting cold.

Anyway…I could go on and on….and I am sure I will on another post….

Until next time……rob

Who is on your team?

Greetings from the metropolis of Cedar Crest, NM….

Just got off the phone with my mentor, Wes Roberts, and a feeling of “simple direction” has come upon me.  It is good to have a mentor.  Wes is what I would call a “life coach.”  We are all willing to have coaches and mentors for different areas of our life….except for our “core”…why is that?  Well…I am thankful for Wes.

By the way….

You can find out more about Wes @ www.WesRoberts.com

Anyway….

So…we are honing in on our next asset acquisition.  A small multi-unit apartment complex in Texas.  I can’t reveal a whole lot about the deal.  But the earnest money goes hard in the next few days and there is not much in the way at this point.  But you never now in this game.  I guess I am trying to put a hex on the deal by writing about it….. 

So…..

Buying and managing commercial real estate is a team effort.  I am not talking about partners although the usually make up part of the team.  The post today focuses on key players that are a big part of the transaction.  From you mortgage lender to your property manager….to commercial real estate consultants.  So….here is my team…..no holding back.

Commercial Mortgage Lender:

Terry Painter @ www.businessloanstore.com is by far the man I go to to my real estate needs.  I have had good friends that own mortgage businesses that tell me “straight up” they cannot beat his terms.  I do challenge his rates and 9 out of 10 times….Terry is right on the money.  Plus I love working with Terry.  He is just a great guy….

Honerable mentions:

Karla and Scott @ www.lyngvarfinancial.com are a great team.  Karla handles the residential mortgage side and Scott deals with the commercial side of things.  I love these two….great people.

Property Management Companies:

Jaxon Texas Property Management – www.JaxonTexas.com:  yes…I am bias.  I use Jaxon for all my property management in West Texas all the way to Albuquerque, NM.  Ask me why I am biased and i will tell you the truth…lol.

Wigland Omega @ www.weigandomega.com.  By far the best multi-unit property management company I have ever dealt with.  A couple of years ago we were coming off a horrible experience with a property management company that costs us hundreds of thousands of dollars.  Weigand Omega, with the help of our asset management company and our consultant (talk about him later), turned the property around and the investment has recovered and doing well.  A bad property management company can put you out of business.  Be sure to check out our free while paper on how to choose to property management company by registering.  Also…If you are getting ready to hire a property management company in Dallas….there is one to stay away from….comment on this post and I will tell you who it is.

Asset Management…and the bookkeeping:

Yes…there is a difference between Property Management and Asset Management.  What is the difference?  I will take another post to explain…but Rachel Cornella from True North Asset Management is my asset manager.  Basically….she manages the property managers and the bookkeepers.  Making sure they are hitting their goals and making sure they are doing what they are supposed to do…..as well as reviewing the books for each property.  True North offers both asset management and bookkeeping services.

I highly recommend Rachel Cornell @ www.TrueNorthAssetManagement.com

Property Management Software.

I use YARDI.  Yes…there are others….but….YARDI is basically an industry standard.  Specifically….I use YARDI voyager.  A web-based software which means…I do not have to host it on my own servers.  I log on and roll.  Yes…it is expensive…but worth it.  At least for now.

Real Estate Investment Consulting….

Roger Maupin and I have been partners for a while.  One of the things Roger loves, other than sailing and his family, is digging into the details of a real estate asset.  I have never met some one who can uncover extra ways to generate cash flow as well as hidden problems with an asset.  I also have seen Roger in action when it comes to turning a property around.  A couple of years ago, Roger Maupin jumped into the trenches with Rachel of True North and Weigand Omega to turn around a multi-unit investment in North Texas.  It was amazing.  So….obviously, I highly recommend Roger for your commercial real estate consulting needs.  Especially if you are buying or trying to turn your property around.

You can reach Roger at:

roger@rogermaupin.com.

Investment Analysis

Investment analysis is probably the most important skill to have.  But most people don’t have the knack for it.  But Steve is one of the best.  Overall Steve is a solid investor….but his gift is investment analysis.  I use Steve every time I am about to buy a property.  And every time, he finds something I missed. Steve is great at identifying the real value of an asset based on passed financials as well as uncovering those small items that sellers try to cover up.

You can reach Steve at: steve_maxwell@comcast.com

Due Diligence Company

Per the strong suggestion of a friend of mine, I used Red Advisors (www.RedAdvisors.com) to do some preliminary due diligence on a 400 unit complex I was working on.  Not only did the preliminary work blow me away….but also verified Steve Maxwell’s analysis on the property.  A one-two punch and that deal died on the table.  If you are interested in buying a 4oo unit apartment complex in Dallas Texas….contact me so I can give you the details and prevent you from becoming a victim…..Yes….I am serious.

Well….I will have more recommendations in the future.  If, by some chance any of the above let you down…I want to hear about it…but I am sure you will be happy with the service you get from my teammates above.

Until next time……rob

We like shopping! Sucre, Boliva with Food for the Hungry

Greetings from the metropolis of Cedar Crest, NM.  Finally back home from my travels….and wow is it hot at 7000 ft elevation.  I do not remember it getting this hot.  Many homes in my area do not have air conditioning because it is rarely needed…including mine.  Wow….I sure could use an AC right about now.

Anyway….

Today’s post is about my favorite of asset type….retail.  Of all the asset types, and I have owned them all (I think) in one facet or another, retail is the asset that is the most interesting and easiest to manage per se.  From property management to leasing, and from maintenance to tenant default.  Retail is a little more clear cut than the other assets.  This of course is my opinion….although my opinion is based on my own experience.

This is the next post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether they fit your portfolio.

What Do I Need To Know?
When choosing which retail property to invest in, you need to garner a good understanding of retail operations and understand a retail cash conversion cycle. Cash conversion cycles denote how quickly a retailer sells goods, how quickly it collects customer payments and how long retailers maintain the goods before having to pay suppliers. Ideally, retailers should sell goods and collect payments before having to pay suppliers.

This is also represented by the following equation dictated by myinvestingnotes.blogspot.com:

= Days in Inventory + Days in Receivables – Days Payable Outstanding
= 365/Inventory turnover + 365/Receivables turnover – 365/Payables turnover

Where, Inventory turnover = Cost of goods sold/Inventory; Receivables turnover = Sales/Accounts receivable; Payables turnover = Cost of goods sold/Accounts payable

Realistically, the two most important components of this equation are days in inventory and days payable outstanding. Looking at historically patterns to determine that a retailer has increased days in inventory over previous cycles can show a decline in the profitability of the retailer. A retailer with excess inventory caused by failure to move products off the shelves, leads to decreased revenue because the retailer must then liquidate inventory. Likewise, a retailer is considered exceptionally strong when the days payable outstanding is substantial. When a retailer is strong, then the retailer can negotiate better with suppliers.

What are the basics for retail investing?
Retail can be leased by street frontage or square foot. Street frontage encompasses the amount of linear feet a building occupies on a street. This measurement only accounts for the side of the building most likely to attract customers.

One of the most common types of retail leases is a percentage lease that requires the retail tenant pay a percentage of the tenant’s gross or net income as rent as long as it exceeds the predetermined minimum amount.

Choosing which property to invest in can be difficult. Many high-end retail developments are beyond the scope of a beginning investor. But, small strip malls can be affordable. Make sure when researching a property to study the anchor tenants. Anchor tenants are the largest tenants that offer the largest potential income (usually, the hope is the anchor tenant is a credit tenant as well). It is also important to make sure the property offers a good mix of retail options for the community.

I don’t want to own a retail building, but I do want to invest. What are my options?
You may want to consider retail stocks. Investing in the stock market requires a different mind set than investing in commercial property. If retail stocks interest you, be sure to consult an expert in your area and do your research.

We are just at the tip of the iceberg when it comes to retail.  There is so much to consider…but we will wait until next time….rob

Are you living the good life from passive income?

Greetings from the Inn Of The Mountain Gods in Ruidoso, NM.  Enjoying the weather before heading to El Paso, TX to hang out with family and friends.  I will also visit some of our retail shopping centers and discuss some vacancy issues with our property management company, Jaxon Texas Property Management as well as our asset management company, True North Asset Management.

Before landing in Ruidoso, NM, I just returned from Sucre, Bolivia and trying to get my head around what I experienced.  Seeing Food for the Hungry in action was an incredible experience and looking forward to going back.

Anyway….

Today’s blog post is a topic that is a difficult one to learn becuase it is not a lot of fun.  Although most of the post is “definition” on thing I would like to point out is that “falling in love with the numbers” is a priority.  Many investors, especially inexperienced investors get emotionally involved before they study the numbers and their emotion will help them “fudge” the numbers.  This is a terrible mistake….but I digress…..

So…..evaluating cash flow….

In the evaluation process of determining whether the property can and will generate enough income, you must analyze the numbers. According to Kiplinger.com, you need to look at several different variables to make the best decision. An interactive worksheet is available at: http://www.kiplinger.com/tools/renthouse/

These variables include the following items, which have been defined based on input from investorwords.com and Kiplinger.com:

• Mortgage Balance: The mortgage balance is the amount remaining due on the mortgage. A mortgage balance is a debt against the asset of the property. There are many creative financing tools available that can help you assess the options with the lowest balance.

• Interest Rate: An interest rate is the rate you pay to use money. IT is often expressed as an annual percentage of the principal (amount of someone else’s money you are using). Interest rates are calculated by dividing the amount of interest by the amount of principal. Interest rates are subject to change based on the rate of inflation and policies of the Federal Reserve.

• Loan Term: A loan term is the period during which a loan agreement is in force and during which the loan is repaid or renegotiated for other terms.

• Building Value At Purchase (including capital improvements): Building value at purchase means the numbers used to calculate your tax basis and annual depreciation. For tax purposes, residential real estate depreciates over 27.5 years, which allows for an annual 3.6% write off of the property tax’s basis. Building improvements are included, but lot value is not. This is different than net present value. Net present value is the difference between the present value of the future cash flows from an investment ant e amount of investment. Present value of expected cash flow is computed by discounting them at the required rate of return.

• Modified Adjusted Gross Income: MAGI is the income from taxable sources less adjustments. According to the IRS, you can deduct up to $25,000 of rental losses annually to reduce your tax bill on other income if your MAGI is less than $100,000. If your MAGI is too high, passive loss rules put your losses into suspended animation, which means that they have no value at the time but will resurface to offset taxable profit when the property is sold. MAGI is calculated for passive activities by subtracting the following from your grow income (not including rental income):
o Job related moving expense
o Penalties for early savings withdrawals
o HSA Deductions (health savings accounts)
o Deductions for qualified plans and self-employed insurance
o Alimony Payments
o Penalties for early withdrawals from tax savings or deferred plans.

• Annual Property Tax: This is the local tax assessed on owned property.

• Active Management Expenses: These include expenses from actively managing a property.

• Private Mortgage Insurance: PMI is mortgage insurance provided by a non-government insurer that protects a lender against the loss if the borrower defaults.

• Inflation (used as a yearly percentage increase in rent, property tax and insurance): Inflation is the upward price movement of goods and services in an economy usually measured by the Consumer Price Index and the Producer Price Index. Over time as costs rise, the value of the dollar decreases because you can’t buy as much with the dollar that you could before. The Federal Reserve actively tries to maintain a 2-3% rate of inflation but the annual rate has greatly fluctuated.

• Income From Rents: This is the amount that tenants or lessees pay you to use the property.

• Utilities: This is the amount spent on heating, cooling, providing water or gas to a property.

• Parking Costs

• Homeowners Insurance

• Advertising

• Maintenance and Repairs: Maintenance can be deducted from the cost of the property. Improvements are not deducted but recovered through depreciation.

• Other expenses: Other expenses include points, commissions, tax return preparation, travel expenses, rental equipment and other expenses related to maintaining your property.

Until next time……rob