Math, Math. (And only then, Location)

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Betty Kincaid, PMN teaches you how to:
-Work with investors to increase
your business.
-Calculate a property’s rate of
return.
-Explain to your clients why they
should own investment property.
-Demonstrate the value of a real
estate investment versus stocks or
bonds.

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Math, Math. (And only then, Location)

  1. 1. Math, Math. (And only then, Location) Betty Kincaid, PMN
  2. 2. Why work with investors?
  3. 3. What can you do today to double your business?
  4. 4. What’s different about working with investors?
  5. 5. How much will it make?
  6. 6. Rate of Return
  7. 7. Tax Shelter <ul><li>Depreciation </li></ul><ul><li>Passive loss rules </li></ul><ul><li>Long-term capital gain tax </li></ul><ul><li>Tax deferred exchange </li></ul>
  8. 8. Leveraged Growth <ul><li>Offers the ability to borrow large sums </li></ul><ul><li>At fixed interest rates </li></ul><ul><li>For long periods of time </li></ul><ul><li>Compound growth </li></ul>
  9. 9. Cash Flow <ul><li>Income </li></ul><ul><li>Appreciation </li></ul><ul><li>Gain in value due to owner expertise </li></ul><ul><li>Loan amortization </li></ul>
  10. 10. Disadvantages <ul><li>Lack of liquidity </li></ul><ul><li>Loss of value due to market </li></ul><ul><li>Property hazards </li></ul><ul><li>Management requirements </li></ul><ul><li>Legislation </li></ul><ul><li>Unexpected expense </li></ul><ul><li>Liability </li></ul>
  11. 11. What could go wrong? <ul><li>Liability </li></ul><ul><li>Vacancy </li></ul><ul><li>Repairs </li></ul><ul><li>Tenant Issues </li></ul>
  12. 12. Make Your Money Going In <ul><li>Below-market acquisition </li></ul><ul><li>Terms/Concessions </li></ul><ul><li>Stick to criteria </li></ul><ul><li>Investment policy </li></ul><ul><li>Keep emotions out of the equation </li></ul><ul><li>There are plenty of fish in the sea </li></ul><ul><li>Take action </li></ul>
  13. 13. Types of Return on Real Estate Equity rises as debt is reduced and value increases
  14. 14. Types of Return on Real Estate Cash flow rises as debt decreases and rents increase
  15. 15. Commercial Property
  16. 16. Specialty Property
  17. 17. Residential Property
  18. 18. <ul><li>Buy and sell </li></ul><ul><li>Cash rules </li></ul><ul><li>Know your numbers </li></ul><ul><li>Be flexible </li></ul><ul><li>Plan for contingencies </li></ul><ul><li>Buy and hold </li></ul><ul><li>Long term </li></ul><ul><li>Maximum equity </li></ul><ul><li>Increase net worth </li></ul><ul><li>Appreciation & cash flow </li></ul>
  19. 19. When Analyzing Property <ul><li>What rents and sells best </li></ul><ul><li>Realistic appreciation rate </li></ul><ul><li>Realistic vacancy rate </li></ul>
  20. 20. When Analyzing Property <ul><li>Reasonable fair market rent </li></ul><ul><li>Reasonable operating expenses </li></ul><ul><li>Realistic projected sales costs </li></ul>
  21. 21. What do you need to know? <ul><li>Objective </li></ul><ul><li>Risk vs. Return </li></ul><ul><li>Type of Property </li></ul>
  22. 22. Capitalization rate <ul><li>The rate of return the investor can expect to get from the property. </li></ul><ul><li>Not dependent on financing. </li></ul>
  23. 23. Capitalization rate <ul><li>Net Operating Income </li></ul><ul><li>_________________ </li></ul><ul><li>Sales Price </li></ul>
  24. 24. Gross Rental Income - Operating Expenses = Net Operating Income
  25. 25. Cash-on-Cash return <ul><li>The rate of return the investor can expect on his cash investment </li></ul><ul><li>Completely dependent on financing </li></ul>
  26. 26. Cash-on-Cash return <ul><li>Net Operating Income </li></ul><ul><li>− </li></ul><ul><li>Debt service payments </li></ul><ul><li>= </li></ul><ul><li>Income before Taxes </li></ul><ul><li>_________________ </li></ul><ul><li>Total Cash at Closing </li></ul>
  27. 27. Property #1 4128 Story Rock Las Vegas, NV 89115 MLS# 1189472
  28. 32. Compare Rates of Return
  29. 33. Property #2 6027 Crumbling Ridge Henderson, NV 89011 MLS# 1147814
  30. 38. Property #3 391 Umbria Way Henderson, NV 89014 MLS# 1131668
  31. 43. <ul><li>The Millionaire Real Estate Investor </li></ul><ul><ul><li>Gary Keller </li></ul></ul><ul><li>Rich Dad, Poor Dad </li></ul><ul><li>Cash Flow Quadrant </li></ul><ul><ul><li>Robert Kiyosaki </li></ul></ul><ul><li>Flip: How to Find, Fix and Sell Houses for Profit </li></ul><ul><ul><li>Rick Villani </li></ul></ul>

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