True Cash Flow to Value Apartment &
Multifamily Investments
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com
Successful apartment & multifamily investors are well aware of the
importance of cash flow.
It s not just the great monthly bank deposits.
Cash flow, and the resultant cap rate and DSCR (Debt Service Coverage
Ratio) determine whether a lender...
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True Cash Flow to Value Apartment & Multifamily Investments http://www. karenhanover. com Successful apartment & multifamily investors are well aware of the importance of cash flow. It s not just the great monthly bank deposits. Cash flow, and the resultant cap rate and DSCR (Debt Service Coverage Ratio) determine whether a lender will originate a mortgage, and for how much. Cash flow is critical in due diligence at purchase, and the pricesetter at sale time. So, it s pretty important to catch any problems with cash flow, and to recognize items that can be improved or omitted in order to improve cash flow. Whether it s something that will allow an increase in rents, or an expense item that can be reduced or eliminated, cash flow will improve, cap rate will go up, and value is greater. The trick, whether buying or selling, is to get to the root of all expenses, and to analyze income for ways to improve it. Particularly when doing due diligence for a purchase, getting as much info
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Marketing & Advertising Media for Apartment &
Multifamily Properties
http://karenhanover.
com/
Concentrating on the positive side of the income statement,
rents generate the income for apartment & multifamily
properties.
Tenants pay those rents, so the focus of
marketing and advertising is to fill the property with
tenants paying...
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Marketing & Advertising Media for Apartment & Multifamily Properties http://karenhanover. com/ Concentrating on the positive side of the income statement, rents generate the income for apartment & multifamily properties. Tenants pay those rents, so the focus of marketing and advertising is to fill the property with tenants paying market rents. High vacancy rates kill cash flow. But, there s a balance that must be maintained between the cost of promotion and marketing and the results. Filling units by offering three months free rent might be easy, but that s a really high marketing cost assuming an apartment or multifamily project that s in good condition, and represents itself well in the market, or even has one or more . So, marketing niche opportunities, what are the available media and the strengths and weaknesses per & Magazines aples of each? Newspa There s no mystery here, as these print media are st for advertising apartment & multifamily properties. Newspapers and magazin
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Income Streams from Apartment & Multifamily
Investment
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com/
The same income or return on investment benefits are
derived from residential real estate investments, but
apartment & multifamily investing just multiplies the
results.
Investors benefit in a number of ways, whether
called streams of return or income....
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Income Streams from Apartment & Multifamily Investment http://karenhanover. com/ The same income or return on investment benefits are derived from residential real estate investments, but apartment & multifamily investing just multiplies the results. Investors benefit in a number of ways, whether called streams of return or income. It s all return on investment, and at some point these returns are realized as income, even if from savings in payment of taxes. Here s a breakdown of how these look. Economy of Scale Though not a return item, economy of scale should be mentioned first. Because the apartment & multifamily project concentrates more units in a smaller area, there are savings in all areas of the cost side of the financial statement. One roof for 20 units is less expensive to maintain. A number of expenses are less per unit just because there are many units in one location. Discounts can be negotiated with vendors as well. So, when an investor is looking at income strea
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Niche Identification for Apartment &
Multifamily Properties
http://karenhanover.
com/
In business, fortunes have been made by locating a niche
demand for a product or service and filling that niche.
Zappos began by selling shoes on the Web.
Shoe sto
everywhere, but Zappos concentrated on broad selection of
size, style and brand with...
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Niche Identification for Apartment & Multifamily Properties http://karenhanover. com/ In business, fortunes have been made by locating a niche demand for a product or service and filling that niche. Zappos began by selling shoes on the Web. Shoe sto everywhere, but Zappos concentrated on broad selection of size, style and brand with fast delivery and liberal return policies. Now, this Web store has grown into other products, including clothing lines. But, the key is that a niche was identified, and Zappos attacked that niche with res are marketing specific to the demand. Apartment & Multifamily properties, though a bit different in the nature of the product, can fill a local rental demand niche. There are a number of characteristics of a market or property that create niches, and they can be very different by market and local economy. The first task is more global in nature, but still important; why people rent apartments. This isn t niche identification, but it can guide the a
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Apartment & Multifamily Repairs & Renovations
http://karenhanover.
com/
Cash flow is king in apartment & multifamily project
investment.
A major component of expense of operation
are repairs and renovation.
The condition and age of
equipment and structures will obviously greatly influence
these costs, and there s not a lot that can...
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Apartment & Multifamily Repairs & Renovations http://karenhanover. com/ Cash flow is king in apartment & multifamily project investment. A major component of expense of operation are repairs and renovation. The condition and age of equipment and structures will obviously greatly influence these costs, and there s not a lot that can be done about this, unless renovation can improve the situation, and holding the property will recoup the cost in increased rents or lower vacancy rates in the future. But, the costs of repair and renovation are also greatly influenced by management choices of material and service contractors. If in-house maintenance is on salary, it s still a cost, and most of these considerations will still apply. Repair Contractor Selection Low bid is sometimes the way to go in selecting a repair service, but only if the specifications of the work are clearly set out in detail in writing. As this is rarely the case, especially when there is a lot of equipment, heati
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Apartment & Multifamily Lender
Valuation Ratios
http://www.
karenhanover.
com
Real estate investors looking to maximize return on investment are
usually leveraged to some degree.
They re not paying cash for properties,
using mortgages to leverage their returns for the cash available.
What
many do not realize is that it can be easier...
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Apartment & Multifamily Lender Valuation Ratios http://www. karenhanover. com Real estate investors looking to maximize return on investment are usually leveraged to some degree. They re not paying cash for properties, using mortgages to leverage their returns for the cash available. What many do not realize is that it can be easier to finance 20 units costing $2 million than to purchase a half dozen homes for the same cost overall. It s because lenders look less at credit scores and income from other sources, and much more at the income or cash flow generated by the property itself. They do this using a couple of ratios. Break-even Ratio At the point the property generates enough income to surpass expenses, it is said to “break even. ” Obviously, the sooner this happens, the better. And, this is a function of the rental income minus expenses. Good marketing, tenant-pleasing amenities and friendly management can increase rents. But, there is a lot to do on the expense side as w
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Stocks & Bonds or Apartment & Multifamily
Investments?
http://karenhanover.
com/
“It takes money to make money.
” It s a popular saying that s
been around a long long time.
And, as regards investing, it s
generally true; not for apartment & multifamily investment, but
that s coming later in this article.
Since the first day there...
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Stocks & Bonds or Apartment & Multifamily Investments? http://karenhanover. com/ “It takes money to make money. ” It s a popular saying that s been around a long long time. And, as regards investing, it s generally true; not for apartment & multifamily investment, but that s coming later in this article. Since the first day there was a stock market, to get those shares into an account, the investor had to buy them, so it took money. Then, with margin and leverage, more could be bought with less, but it still took money. The thing about stock and bond markets is that the money used to purchase can be borrowed or margined, but it s still going to be a ratio that doesn t allow a whole lot of leverage without a whole lo of risk. How does apartment & t multifamily investment differ? Patience. vesting in StocksIn Using an example investor, call her Donna, with $250,000 to invest somewhere. She wants the best return possible, but with minimal risk, as that s her tolerance level. She s
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Apartment Investment – The Student
Market
http://www.
karenhanover.
com
Apartment investment can take many forms and property types.
In
any selected apartment investment market area, the investor can find
family oriented units, units marketed to young professionals, and then
there s the student market.
Attitudes of investors vary,...
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Apartment Investment – The Student Market http://www. karenhanover. com Apartment investment can take many forms and property types. In any selected apartment investment market area, the investor can find family oriented units, units marketed to young professionals, and then there s the student market. Attitudes of investors vary, as there are special considerations in owning and renting out apartments to students. What considerations are weighed by investors in student apartments? Do a thorough market analysis. What type of school is the primary provider of prospective tenants? What are tuition rates, and what is the average tenant student s financial situation? Are there areas around the school(s) that are better than others due to transportation or facilities? Read the newspapers to see if there s regular news of problems in student rental units. Where do students tend to hang out, study and recreate? The apartment investment that s close to their favorite hangouts will be in m
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Ratios for Apartment & Multifamily
Lending Decisions
http://www.
karenhanover.
com
Real estate investors experienced in the purchase and renting of single
family rental properties are quite familiar with lenders who look at
credit scores, proof of income, and also the possible cash flow from the
investment.
But, many don t realize...
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Ratios for Apartment & Multifamily Lending Decisions http://www. karenhanover. com Real estate investors experienced in the purchase and renting of single family rental properties are quite familiar with lenders who look at credit scores, proof of income, and also the possible cash flow from the investment. But, many don t realize that a mortgage for apartment & multifamily properties can actually be easier to get. That s because the decision of whether to loan and how much to loan is made mostly on the cash flow of the property. With cash flow being the major factor in the lending decision, there are a couple of simple ratios that a buyer can use to help them to view a potential apartment or multifamily property purchase in the same way a lender would view its value. These ratios attempt to assess the value and the risk in a mortgage based on the cash flow generated by the property. Here are the basics of these two ratios: Break-even Ratio for Apartment & Multifamily Mortgage Dec
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Repair or Replace Decisions in
Apartment & Multifamily Projects
http://www.
karenhanover.
com
Cash flow is critical in apartment & multifamily investment,
and rental income less expenses is where it originates.
Expenses include a large component related to the maintenance
and repair of appliances, heating and air conditioning...
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Repair or Replace Decisions in Apartment & Multifamily Projects http://www. karenhanover. com Cash flow is critical in apartment & multifamily investment, and rental income less expenses is where it originates. Expenses include a large component related to the maintenance and repair of appliances, heating and air conditioning systems. Controlling expenses is important, but there s a point at which every apartment & multifamily owner/manager must consider whether it s better to keep repairing old equipment or to replace it. Both timing and cash flow are considerations in repair or replacement decisions in apartment & multifamily investment. If the exit strategy is to hold for the long term, then a decision can be based solely on an analysis of the cash flow benefits from wholesale replacement of equipment that s creating large expense outflows for repairs due to age and condition. Buying 50 new furnaces can be a good decision if the loan to make the purchase results in a monthly pa
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