Description
BUYING AND MANAGING INVESTMENT PROPERTY
PART 1 BUYING INVESTMENT PROPERTY
Section 1
Introduction
key terms
Getting started
Who will succeed?
Commission
Personality traits
Types of commercial real estate
Land and buildings
Types of ownership
Section 2
Risk vs. return
Categories of risk
Attitudes toward risk
Ethical practices
Due diligence
Calculating return on investment
Improper insurance risks
Risk management, doing the right thing
Economic
Liquidity
Environmental
Crime
Business management
Section 3
Financial
Key terms and examples
Operating expenses
Leverage
Determining net operating income
Break even point
Valuation
Types of investors
Highest and best use
Commercial mortgage financing
Section 4
Land use, zoning and design
Environmental issues
Zoning
Architecture and design
Building codes
Zoning restrictions
Section 5
The nature of real property value
Basic concepts
Immobility and tangibility
Differences between real estate and real property
Bundle of rights
Other considerations
Appraisal process
Definition of an appraiser
Requirements to become an appraiser
Definition of an appraisal
Economic forces that drive real estate
Other real estate concepts
Other considerations
Determining gross multiplier
Section 6
Leasing the property
Determining factors for leasing
Buy vs. lease
New tenant considerations
Location
Terms of lease
Determining the rent
Other tenant considerations
The true cost of rent
Commercial lease checklist
Section 7
Anatomy of an investment transaction
Negotiating the contract
Handling earnest money
Due diligence
Lease reviews
Tenant interviews
Service contracts and warranties
Title and survey
The new entity
Bank accounts
Pro rations and adjustments
Signing the documents and closing the transaction
Closing statement
Review
Section 8
Everything else
Flipping
Hard money lenders
Tax liens
Wholesaling
Short sale or pre-foreclosure
Like/kind exchanges
Basics
Qualified intermediary
A typical 1031 exchange
Important investment terms
Is investment property right for me
Minimizing problems to avoid risk
Part 2, Section 1 Property Management: Whereas part one was based on knowledge
needed to purchase investment real estate, part two deals with managing that property once
you own it. The Introduction is, of course, just a brief overview followed by key terms to learn
the vocabulary of the task at hand. Property management defined explores the job
description of the property manager along with a list of their typical responsibilities and
methods of accomplishing them.
Section 2 Property Management Agreement: In order to have a successful relationship
between the owner and the manager, it is always a good business practice to spell out all of
the terms and conditions as well as actions of all parties. This section does all that. Provisions
of the agreement include financial reports, fiduciary responsibilities including handling of
deposits and monthly rent collected and disbursement of funds. Absolute compliance with the
law needs to be included in the agreement and, perhaps, penalties for noncompliance. Next,
we cover the reserve fund, insurance and reimbursement of expenses of the property
manager. Needless to say, of great importance is an explanation of management fees. Not
only the amount, but when it is paid and what does it include such as capital improvements. Is
there an additional fee paid for those? Liability, hold harmless, indemnification and default
are explained to underscore the responsibility of the manager. Descriptions of the day-to-day
operation of the job including, reporting, payroll, and analysis of the management plan are
outlined. The requirements for extensive reporting and understanding accounting procedures
are underscored. There is recognition for the need for extensive risk management actions in
order to protect both the manager and the owner. A management plan is determined by the
parties and the possibilities of the need for change in direction as time goes by. An analysis of
the plan and the possible results create a strong operational guide for all to follow.
Section 3 Management Checklist: A complete summary of the lease terms with in depth
explanations of all the different sections. A manager will only be successful if he recognizes
the need to create a business plan to avoid adversity. Most adversity is the result of different
views of the terms of the lease. For this reason, we spend a great deal of time exploring all the
fundamentals that will enable all parties to clearly understand their rights and responsibilities.
Other possible, but not necessarily common terms are explained. Such as, premises clause,
use and exclusive use clauses. Term clause is explained so that it becomes understood the
exact beginning of the term of the lease. Is it on the day the lease was signed, on the day
construction begins, the day construction is complete or any other designated time. The right
of the landlord to enter the premises must be determined and agreed upon. Also, how the
lease might be broken, how to settle disputes, and who pays any attorney fees, are all
discussed. The conclusion is a simple one; the job is difficult at best. However, a good
property manager can be the greatest asset a landlord will have.
