Make Money with Affordable Apartment Buildings and Commercial Properties (Make Money in Real Estate)

239 Pages·2008·3.66 MB·English

by  Gary W. Eldred

M A K E M O N E Y
with
AFFORDABLE APARTMENT
BUILDINGS AND
COMMERCIAL PROPERTIES
SECOND EDITION
GARY W. ELDRED, PhD
John Wiley & Sons, Inc.
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JJWWBBKK113322__FFMM..iinndddd iiii 33//1155//0088 1100::4411::1199 AAMM
M A K E M O N E Y
with
AFFORDABLE APARTMENT
BUILDINGS AND
COMMERCIAL PROPERTIES
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JJWWBBKK113322__FFMM..iinndddd iiii 33//1155//0088 1100::4411::1199 AAMM
M A K E M O N E Y
with
AFFORDABLE APARTMENT
BUILDINGS AND
COMMERCIAL PROPERTIES
SECOND EDITION
GARY W. ELDRED, PhD
John Wiley & Sons, Inc.
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This book is printed on acid-free paper. ∞
Copyright © 2008 by Gary W. Eldred, PhD. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Eldred, Gary W.
Make money with affordable apartment buildings and commercial properties /
Gary W. Eldred.—2nd ed.
p. cm.
Includes index.
ISBN 978-0-470-18343-4 (pbk.)
1. Real estate investment—United States. 2. Apartment houses—United
States. 3. Commercial real estate—United States. I. Title.
HD259.E4 2008
332.63'243—dc22
2007045704
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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C
O N T E N T S
Acknowledgments xiii
Introduction: How to Start 1
Develop Your Analytical Abilities 1
Develop an Entrepreneurial Spirit 2
Uncommon, Yet Essential 2
Entrepreneurs Create Value for Themselves and Their
Customers (a.k.a. Tenants) 3
Market Savvy: Systematic Strategic Thinking 5
1. Profi t with Commercial and Multifamily
Properties 7
Advantages of Commercial and Multifamily Properties 7
Cost of Acquisition 8
Cash Flows Relative to Price 9
Search Time 13
Management 14
Trade Up Tax Free 15
Owner Will Carry Financing (OWC) 17
Possibilities to Create Value 18
Summing Up 20
2. Craft Your Market Strategy 22
It All Depends 23
A Strategy of Your Own 23
PVP: The One Constant Rule 23
The DUST Strategic Framework: Questions to Answer 24
Entrepreneur Objectives: Know Thyself 26
Talents, Inclinations, and Resources 26
Assess Your Finances 28
v
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vi CONTENTS
Frame Your Due Diligence 30
Identify and Fully Describe the Physical Property 31
Understand Your Bundle of Rights and
Restrictions 36
Where Should You Invest? 48
Time Period 49
3. Where’s the Local Economy Headed? 50
Economic Base Matters Greatly 51
Alamo, California (San Francisco Bay Area) versus
Terre Haute, Indiana 52
Authors Neglect Economic Base 52
Benefi t from the Lessons Learned 53
Where to Get Data 55
Will the Population Grow? 55
Enclaves of Existing and Potential Growth 55
Find Out the Actual Numbers 56
Beware of False Negatives 56
Is the Number of Jobs Increasing? 57
What Was the San Diego Connection? 59
Forecasting Recovery 59
Cost of Running a Business 60
Businesses and Employment Migrate to Lower-Cost
Cities, States, and Countries 61
Cost of Living for Employees 61
Quality of Life 62
Quality of Life Also Attracts Wealth 63
Community Attitudes and Actions 64
Entrepreneurial Spirit 65
Concluding Remarks 66
4. Outperform the Competition 68
The Competitive Battle 69
Four Good Reasons to Inventory, Inspect, and
Critically Review Competitors 69
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Contents vii
Where to Invest 69
Market Information Gives You Negotiating
Power and Confi dence 71
Searching for a Preferred Value Proposition (PVP) 72
Constructing Your Financial Pro Formas 73
Identify Your Competitors 74
Quickly Adapt to Change 74
When Markets Tighten 75
More Practical Implications 75
What to Look For: The Location 76
Aesthetics 77
School Districts 77
Property Taxes and Services 78
Crime Rates 79
Accessibility 79
Trendiness 79
Public Transportation 80
Who Are the Residents and Recent Homebuyers and Tenants? 80
Site Features 81
The Exterior of the Building 81
Play the Tenant 82
Inspect the Interiors of Competing Units 83
Aesthetics: How Does the Unit Look, Feel, and Sound? 83
Livability: Unit Size, Room Count, and Floor Plan 84
Energy Costs 85
The Rental Process 86
5. Choose the Best Target Market 88
How to Create a PVP 88
Diversity Rules 89
Demographic Differences 90
Psychographic Differences 93
Avoid Standard Labels; Picture Your Actual Renters 98
Hitting the Bull’s Eye 100
Find Unique and Intense Needs 100
Bull’s Eye Lease Assessment 101
Throw Away Standard Operating Procedures 101
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viii CONTENTS
How Do You Identify the Wow (PVP)
Features for Your Tenants? 102
Informal Conversations 102
Pay Attention 103
Talk with Insiders and Experts 103
Use Questionnaires 104
Focus Groups 105
Anticipate and Adapt to Change 106
The Age Wave 106
Echo Boomers 107
Local Trends and Changes 108
6. Is the Property a Good Deal? 109
How Much Would It Cost to Construct the Property
Today? 110
The Construction Cycle 110
Implications for Investors 111
Local (Regional) Recessions 113
Per Unit Measures 113
Per Apartment Unit 113
Per-Square-Foot Measures 115
Price Per Front Foot 117
Gross Rent Multipliers 117
Capitalized Value 118
Estimate Market Value 122
Anticipate the Future; Pay for the Present 124
Cash-on-Cash Return 125
Growth in Equity 127
Don’t Settle for Low Rates of Appreciation 129
7. Collect More Rents 130
Never Accept Average 131
Stand Out and Stand Above 131
A Strategy of Your Own 132
Verify Current Rent Collections 133
Examine All Leases and Rental Applications 134
Interpreting the Rental Information 134
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