Invest in Real Estate Like A Pro

Transcription

1 Invest in Real Estate Like A Pro Helping yourself and your clients build wealth Steve Chader

2 Steve Chader Mesa, Arizona Operating Agent KW Integrity First Realty Mesa/Gilbert, Arizona Scottsdale, Arizona KWU International Master Faculty KW Cares Board of Directors

3 Today s Take Aways Identify what makes a good investment. How does a successful investor think? Learn the tools available to make things easier. Learn how to apply these concepts and increase your business.

4 Building the Skills An Investor Needs to Know 1.How much rent will I get? 2.What will the expenses be? 3.Will I have any vacancy? How much? 4.How much will I need to invest? 5.How do I take care of this investment?

5 Learn to Analyze CAP Rate Cash on Cash Cash Flows Before and After Taxes Rates of Return

6 We Are Media Programmed

7 Speaking the Language Stock Market Price/Earnings ratio Yield Dividend Margin Inception to date annual Real Estate CAP Rate Return on Investment Cash flow before tax Leverage Internal Rate of Return

8 After more than six years of a bull market, investors should stare a cold, hard truth straight in the face: Future returns on stocks are likely to be far slimmer than the fat gains of the past few years. Leading investment analysts think you will be lucky to squeeze out an average return of 2% annually, after inflation and fees, from a typical portfolio of stocks and bonds over the coming decade or so. Investment expenses will loom much larger in a world of smaller expected returns. So will avoiding big mistakes. U.S. stocks fell about 3% between Monday and Thursday this past week as economic growth seemed to falter. But that wasn t nearly enough to make stocks cheap. One measure of valuation, based on data compiled by Yale University economist Robert Shiller, shows that the market price of the S&P 500 is about 27 times its average earnings over the past 10 years, adjusted for inflation. The long-term average, based on data going back to 1871, is about 16 times adjusted earnings. So how have U.S. stocks performed in the past when valued around 27 times average earnings? Over the following 10 years, they generated total returns, counting dividends and adjusting for inflation, averaging about 2.5% annually, Prof. Shiller told me earlier this month. 8

9 Learn To Use The Right Tools 0.5 HOLD Property Analysis Worksheet Free spreadsheet download

10 HOLD Property Analysis Worksheet By knowing how to use this tool, you will be able to do what if scenarios to make sure your client is well advised.

11 Calculate the Net Operating Income Property Rents for $1000/mo. Taxes are $1,800/yr. Insurance is $600/yr. HOA is $30/mo. Management fee is 10% of the rent Repairs equal 5% of the rent. What is the NOI?

12 NOI Calculation Rents for $1,000/mo. Taxes are $1,800/yr. Insurance is $600/yr. HOA is $30/mo. Management fee is 10% of the rent Repairs equal 5% of the rent. $12,000 $1,800 $600 $360 $1,200 $600 What is the NOI? $7,440

13 HOLD Property Analysis Worksheet 0.5 NOI Free download at

14 What Is the CAP Rate? The Rate At Which Your Capital Grows Bank 0.5% CD 2.5% Bonds 4.5% Stocks 6-10% Real Estate????

15 CAP Rate Calculation NOI/Price = Rate Rate NOI Price Gross Scheduled Income - Vacancy & Credit Loss - Operating Expenses = Net Operating Income

16 CAP Rate NOI/Price = Rate NOI Rule of thumb to compare Assumes you pay all cash Rate Price Analyzes only the first year Easy to calculate

17 Which is the better investment? Example 1 Example 2 Example 3 Example 4 Price 125, , ,000? Rent 900/mo. 1000/mo. 1,900/mo. 22,800/yr. Expenses 300/mo. 5,400/yr. 800/mo. 9,600/yr. NOI? 6,600 13,200? Rate??? 9

18 CAP Rate Examples: NOI/Price = Rate Example 1 Example 2 Example 3 Example 4 Price 125, , , ,667 Rent 900/mo. 1000/mo. 1,900/mo. 22,800/yr. Expenses 300/mo. 5,400/yr. 800/mo. 9,600/yr. NOI 7,200 6,600 13,200 13,200 Rate 5.76% 4.4% 7.54% 9

19 Cash on Cash

20 Cash on Cash Rule of thumb to compare Price not a factor Analyzes the first year Ignores tax benefits

21 In Depth Analysis - Internal Rate of Return Real estate offers tax benefits. Real estate offers long-term financing. Real estate has cash flows. Real estate appreciates over time. Real estate can be improved to build value.

22 Assemble Your Team Find great investments. Buy the property right. Perform an accurate analysis. Manage it like a business. Reach the goals. 22

23 Use the Tools The Tool gives you confidence and credibility. Get real numbers from your team member in property management. Share this analysis with their accountant. Free spreadsheet download 23

24 Look At What The Future May Hold Analyze Investment Properties 24

25 Good Investments Look Good Going In

26 Be On Purpose Make it part of your business plan 2 for 1 in 12 Start the conversation. Give them a book and set a time to discuss. Find prospects. Script I look at properties every day. When I find a great investment, would you like to know about it? 26

27 Experience: The Best Teacher Personal experience gives you and your client more confidence. Use your natural advantage to acquire some good investments. You can create buyers from your tenants. Don t let management worries stand in your way.

28 Next Steps Contact your client base to discuss investment opportunities. Help parents and grandparents invest to cover college tuition or retirement dreams. Look for investment opportunities.

29 Steps to Get Started If they already own property Determine if they should upgrade. Pull out equity and buy more. Check your options for refinancing. Exchange it for a more productive property. 29

30 Assemble the team. Make it easy to start. 30

31 Next Steps Learn about the tax laws 1031 Exchanges How to shelter current income Use the W-4 to create more monthly cash flow

32 Thank You. Please discard all your trash as you leave! Please complete an evaluation for this session. Use any mobile device! Download a FREE copy of this presentation. Go to familyreunion.kw.com/downloads