I met with a successful San Diego Broker a few weeks ago who asked me:
"If I was a broker today and in my 40s, what would I be doing to insure my professional survival?"
After a lot of thought, my answer is exactly what I did when I was confronnted with some of the same issues in the 1980s...
Expand my offerings.
This is what led me to the conversation on getting involved in multifamily if you are now listing and selling houses. It is the next logical expansion of your practice. I know it worked well for me.
Some of the fundamentals to make this move into a new product area:
A. Understanding the Economy and how it creates investment
opportunity niches.
1. Phases of the business cycle - expansion, prosperity, recession, depression. When do people by and when do they rent. When are office buildings built, when do they fill up. When are new businesses created which require new shopping center frontage.
2. Is the trend toward centralization or decentralization?
B. Understanding value of income producing real property. The difference between a single unit speculation and a multi unit cash flow investment, or a combination of the two. The value of a real estate investment is defined as the current or present value of the future cash flow benefits that the property is expected to generate.
C. Understanding the rental marketplace
D. Cash - How much down to break even, if not from me, then from whom?
E. Management Skills
F. Negotiating skills, understanding the contract and knowing what to ask for.
Understanding Value
Value - "Until you know value, everything is worthless"
The value of income producing property is directly related to the income the property produces.
Four Great Forces that Influence Value
Physical - This is the quality and convenience of schools,
shopping centers, playgrounds, transportation
systems, etc. It also includes the climatic conditions.
Social - Population growth or decline; Marriage, divorce
and birth rates; educational and religious standards.
Economic - Business and real estate cycles, variations in
directional growth, natural resources, wage levels,
tax levels and insurance schedules.
Political- Zoning, fire and police protection, government loan
and other subsidy programs.
Income
Rent amounts are usually controlled by supply and demand
It is net income that we are most concerned with
Gross Scheduled Income
-Vacancy and Uncollectible Rent
Effective Gross Income
-Operating Expenses (Fixed and Variable) (see pages 16, 17, & 18)
Net Income
-Debt Service
Cash Flow
-Added Taxes
Net Spendable
Increases and decreases in income increase and decrease value.
If you can increase the net income by increasing rents or decreasing expenses, you increase the value.
Let me know if you have any questions.
More to come...
