Analyzing Real Estate investments Radio Show (Episode 1 – 2/17/2014)

Click here to LISTEN ––analyzing-real-estate-investments-with-kyle-malnati


Duane Duggan: Re/Max of Boulder – relationship selling, first time home, investing in single family homes, purchasing apartment buildings, creating legacy for their heirs

Kyle Malnati: 4-50 unit apartment buildings in metro Denver

Purchasing multifamily investments offer an alternative to frustrations with volatility of the stock market. Rental real estate offers a tangible investment asset and you can “roll your sleeves up” by getting involved in maintenance.

Questions for a new investor:
– What is your source of down payment?
– What is your comfort level with leverage/debt?
– Where would you like to have your investment located?
– What size investment property would you like?

How do Buyer’s get information about an investment?
– Qualified Buyers can get financials from the Listing Agent: rent roll, Income/Expense, financial analysis (APOD)

Location, Zoning, Return
– Location: many owners look for buildings that they would personally feel comfortable living within
– Zoning: varies by municipality
– Returns: risk and return are directly correlated… risky locations typically yield higher returns

Tax Analysis:
– double declining depreciation was a thing of the past
– make sure to engage a CPA that has real estate experience
– get a list of local CPAs from a REALTOR
– taxes are a big advantage of rental real estate
– depreciation (not a dirty word) – 27 1/2 years for “paper loss”
– depreciation gets eliminated if a person makes a certain amount of money
– 1031 Exchange: defer long term capital gain

Appreciation? Potential for Appreciation?
– directly tied to level of risk
– more established neighborhoods typically appreciate over time, but might yield lower yearly cash flow because of price required to pay for nice neighborhood
– crime? contact your local police department

Multifamily market has heated up
– analyze investments further…
– Denver’s multifamily is a hot Seller’s market
– low vacancy rates
– high rent increases year over year
– low construction until now… developers are building more apartment buildings currently

Income/Expense Analysis
– rental income + laundry income + parking income + misc. income
– operating expenses before loan: property management, utilities, repairs, insurance, taxes
NOI (Net Operating Income)

Cash Purchase vs. Loan?

ROI: Return on Investment (ROI) is synonymous with “cash flow” (cash-on-cash return)

Cap Rate equation: NOI/Purchase Price (best used when purchasing property without a loan)
– represents year over year return when purchasing property with no debt

Rental analysis is fundamental… nothing varies from state to state (except location obviously)

Debt Coverage Ratio
– general rule of thumb 1.2 or 1.25 for lender to fully leverage property
– simple example: 125% cash flow
– $10,000 income yielding a 1.25 DCR ($8,000 max loan payments)
– the extra $2,000 ($10,000 income – $8,000 mortgage) is 25% above the total mortgage payments
– that extra $2,000 provides a cushion if cash-flow suddenly decreases
– sum of the loan payments every year can’t exceed the cash flow

Internal Rate of Return (IRR)
– Duane used to calculate by hand
– IRR is a “beefed up” view of cash-on-cash return
– calculate year by year return over 5 or 10 years
– most complete level of analysis
– very good to use if you already know your horizon for ownership
– IRR includes sale at the end
– you can stop with tax ramifications
– yearly depreciation with IRR
– capital gain at the end of the sale
– use a spreadsheet
– most returns can be done with a simple calculator

– landlord software
– Yardi
– Apartment Association (both National and local board)
– searching on LoopNet

Denver Apartment Buildings For
Madison & Company Properties

Apartments are such a different world than residential real estate

Do most of my clients rely on me to run the financial analysis or do they do it on their own?
– it depends on the investor… I usually show them my analysis at first, but most of my clients run their own analysis when they become more experienced

Real estate professional tax status – good link here:

Get folks to take ACTION… avoid the fear… simple analysis is the best way to make an informed decision

Making the MultiFamily Purchase
– all of your “profit” is made at the purchase
– DCR: debt coverage ratio will determine if loan
– Down Payment? (25%-30%)
– timelines for purchase
– selecting a REALTOR
– MLS vs. buying off market
– Keep things as simple as you can: you might not have time…
– Understand everything before you invest
– Buyer Beware Cautionary Tale: Don’t just take someone’s word
– NOI, Cap Rate, Cash-on-Cash return, IRR
– how to find a lender
– real estate can be uncomplicated
– start with SF rental, go to duplex, trade up to 4, then 8, 16, 20 and so on…
– take control of your investment future
– nothing wrong with other investments

— Radio Show Hosted by:
George Thomas | Director
Over the Top Productions |