onerent owner investment network - event 1

Greg Toschi CEO & Co-founder

Welcome to the Network

Fred Glick VP of Real Estate Ops Broker of Record

Qualifying a Buy and Hold Investment

Tucker Smith Marketing Coordinator

“Everyday skills can yield extraordinary returns.

- One of first four employees - Editor: ‘Build with Onerent’ (Blog)

- Market Research - Customer Research

Tucker Smith Marketing Coordinator

Fred Glick VP of Real Estate Ops

- Broker of Record for Onerent - CEO of Arrivva - Licensed Broker and Loan officer for # years

How This Might be Useful to You •  If you inherited your property, and have never bought

one. •  Don’t go through what I did. Use this as a starting point and

road map.

•  If you’re looking to become more efficient at qualifying deals •  Your time becomes more valuable as your portfolio scales.

This gives you a process that you can tailor to fit your needs.

•  If you haven’t taken a finance class in the last 10 years •  Everyone forgets math at some point. Even the most

seasoned investors might find, or rediscover a golden nugget.

Overview

Properties make money in 4 ways 1.  Cashflow 2.  Appreciation

Deal Funnel Process

Cashflow Analysis: In the Moment

Cashflow Analysis: Over Time

3. Asset Attainment 4.  Tax Benefits

Deal Sorting Funnel

• Data overload •  MLS, Redfin, Zillow, Trulia,

Investing Events, etc.

• Time = Money •  The faster you close deals,

the longer your money has to work for you

Lead sources

Rules of Thumb Rent/Purchase Price

50% Rule

= 1.5% “Most properties that are over X% in this market usually generate positive cashflow”

States that at least half of your rental income is likely to be allocated to non-mortgage expenses (maintenance, insurance, or property management)

Rules of Thumb cont.

Vacancy Turnover •  How long until I start getting paid? (Will I have to fix it up?) •  Judgement call •  Price, condition, lease terms, time of year, etc. •  Average vacancy reports

Cashflow Analysis: In the Moment

Annual Property Operating Data (APOD)

•  Can be thought of as a property balance sheet •  Foundation for the rest of our

analysis •  Annual Net Operating Income

Calculations that give insights to a property at a specific point in time

Cashflow Analysis: In the Moment

Annual Expected Income •  Dictated by the market •  Compare properties of similar size, condition, location, and

amenities •  Mapliv.com

Vacancy Loss •  % of Annual Expected Income •  Lenders will want a figure •  Safe estimates: 5% in average markets, 2% in hot

Gross Operating Income •  Income generated by a property pre-operating expenses

Cashflow Analysis: In the Moment Operating Expenses

•  Expenses associated with operating a property •  Maintenance, utilities, and insurance •  Mortgage payments and depreciation expenses do not count

Gross Rent Multiplier (GRM) •  Used to estimate property operating expenses •  Similar investment properties à produce similar incomes à

sell for similar amount à similar operating expenses.

Cashflow Analysis: In the Moment Property Value = $150,000 Annual Expected Income = $20,400 GRM = 7.5

•  Your property is valued roughly 8 times higher than the yearly income it produces

Perform on similar properties in the market. Compare GRM’s to confirm that the prospective property’s asking price is fair. If the asking price is fair, then you can roughly equate their operating expenses to what yours will be.

Cashflow Analysis: In the Moment

Net Operating Income (NOI) •  Cash produced by property if it

were paid off and tax exempt •  Used in a lot of calculations

Start your analysis by forming an APOD •  Creates loose operating budget

Cashflow Analysis: In the Moment Cap Rate •  Expresses relationship between NOI and

property’s market value

Market Value = Investment Amount NOI = Return on Investment Cap Rate = Rate of Return

Expresses cap rate as a percentage

Check to see if asking price is fair

Target NOI based on desired Cap Rate and Market Value

Relationship can be manipulated to reveal a lot of info

Cashflow Analysis: In the Moment

Debt Coverage Ratio = 1.0 •  You have exactly enough left to pay

the mortgage

Debt Coverage Ratio > 1.0 •  Can pay mortgage + extra cashflow

Debt Coverage Ratio < 1.0 •  Will have to pay some of mortgage

out of pocket

Debt Coverage Ratio •  Can I pay my bills? •  Shows how much money you have

available for Annual Debt Service w/o losing money •  Remember 50% rule

Cashflow Analysis: In the Moment

Default Ratio •  Shows lenders how likely a property is to defaulting on mortgage loans •  Most want to see something below 80-85%, but it’s case-by-case depending

on the market conditions

Cashflow Analysis: Over Time

Time Value of Money •  A dollar today is worth more than a dollar tomorrow •  “Today dollars” have the potential to be invested and increase in

value •  Due to inflation, the dollar’s buying power decreases as time

passes

Cashflow Analysis: Over Time

Compound Interest •  Calculates interest for the next period of a loan •  Based on principal + previously accumulated interest

Cashflow Analysis: Over Time

If inflation was 10% between years 1 and 2, then you’d actually have…

Present Value of a Future Cashflow

Tells you what your investment is worth in today’s dollars

Year 1: Invest $100 Year 2: Money grew to $109 r=discountrate(expecteddecreaseinbuyingpower)

I made $9 right? Not necessarily.

Cashflow Analysis: Over Time

Discounted Cashflow •  Sum of present value of all future

cashflows •  Calculated year by year with PV

equation •  Use excel template

Cashflow Analysis: Over Time Net Present Value (NPV) •  Closely related to Profitability Index regarding the amount you pay

for future cashflows •  Am I going to reach my desired rate of return? (single property)

Profitability Index •  Also shows rate of return of a property •  Provides a ratio that makes it easy to compare multiple

properties

Cashflow Analysis: Over Time

Cashflow Analysis: Over Time

Property A produces

higher returns per dollar

Cashflow Analysis: Over Time Which loan is better? •  Depends on how long you

keep the property, and how much you save each year on interest by taking the points •  Use excel template

Calculating a Mortgage •  Typically structured so that the

principal amount and interest payments are paid monthly over lifetime of loan

Calculating Points •  Prepaid interest on mortgage

loans •  1 point = 1% of mortgage

Basics of Analyzing Appreciation Network

•  Agents •  Brokers •  Property Managers •  Other Investors

Basic Market Factors •  Job Growth – Does it rely on a single industry? How stable

is that industry? •  City expanding Infrastructure – “18-hour city” •  Average Rent •  Average Sale Price •  Average Vacancy Time

Links Ebook + spreadsheet template

http://content.onerent.co/buyandholdguide

Building a Repeatable Model http://content.onerent.co/buyandholdguide/part2

Tax Strategy Guide http://content.onerent.co/buyandholdguide/part3

‘Build with Onerent’ http://blog.onerent.co

Rent vs Sell?

Greg Toschi CEO & Co-Founder

“The Bay Area still shows strong trends towards of a growing rental market.

Is The Bay Area Still On Top?

The San Francisco Bay Area is still in the top 5 fastest growing markets

Is The Bay Area Still On Top?

Bay Area rent growth is the strongest in the nation.

Why Are We Still on Top?

Why Are We Still on Top?

Purchasing trends of Millennials

Why Are We Still on Top?

The Current State of Real Estate Financing

“Hack your way into a better mortgage rate today.

Fred Glick VP of Real Estate Ops Broker of Record

The Standard Mortgage

Types of real estate financing: 1.  Primary residence 2.  Secondary residence (vacation) 3.  Investing

The Standard Mortgage: Qualifications

How to get pre-approved 1.  Property 2.  Personal income and property income 3.  Assets including reserves 4.  Credit

The Standard Mortgage

Fannie Mae and Freddie Mac (1-4 unit residential financing) Maximum Mortgage

$625,500 $800,775 $967,950 $1,202,925

Units 1 2 3 4

Max Loan to Value

85 80 75 75

Down payment 15% 20% 25% 25%

Specific for Bay Area homes

Non Standard Mortgages

Available Programs -  Stated income -  Non warrantable condos -  Low credit score -  Over 4 units

Income calculations: -  Debt service coverage -  Recourse or non recourse financing -  Interest only -  Terms

Non Standard Mortgages

Income calculations: -  Debt service coverage -  Recourse or non recourse financing -  Interest only -  Terms

Hacking Your Mortgage, Legally!

How to buy a 1 or 2 unit property with 3.5% down payment •  The “kiddy condo” •  Use your relatives •  No income, or assets needed Seller financing •  Pay less for your down payment •  Befriend your lender

Hacking Your Mortgage, Legally!

Free tax deductions from your seller •  Negotiate hard •  Get tax deductions for “points”

Owner & agent network

Owner & agent network

Rick Trevino Don Sung

Intero Real Estate

Colliers International

How we can help you