analyzingacommercialrealestateinvestment-111029204718-phpapp02

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Analyzing a Commercial RealEstate Investment

Westfield North Building, 2730 UniversityBlvd, Ste. 200, Wheaton, Maryland 20902

3019!91771 "#hone$3019!9%!!1 "&a'$

(((.)ditraining.net

Presents:

ByD. Scott Smith, CCIM

443.691.8153

www.expertcre.com

[email protected]
http://www.expertcre.com/http://www.expertcre.com/


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Class Room, DLLR, and MREC Rules!!!*+ou ust sign in and o

ut to get - "sho( /$

*No eating, slee)ing, or using eletronis

*+ou ust e on tie

*aise your hand to as4 5uestions*Be )olite


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Review 4 basic stes to ind a ulse on an

investment"

#art 1. eterine Net 6)erating /noe "N6/$#art 2. oan Seletion

#art 3. eterine -ash &lo( Before 8a' "-&B8$#art !. -alulate eturns

NOTE: There are many additional steps needed tofine-tune each analysis.

#oday $e $ill%


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fe( things first:

*Analysis &aralysis is over analy;ing a deal to atte)tto reove ris4.*8he only (ay to o)letely avoid ris4 is to not invest.*ifferent ethods often )rovide different results.

*


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'ome Industry 'tandards or Analysis

*/nternal ate of eturn "/$

*-ashon-ash eturn "-6-$

*&inanial Manageent ate of eturn

*nd -a) ate, to nae a fe(


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#(e )ey to a successul investment is to be able to

answer %

*What is your ris4 tolerane?

*oes the investent a4e sense to you?

*oes it eet your goals?


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'te *" +et erating Income -+I.


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#otential ental /noe @aany and -redit oss A ffetive /noe

6ther /noe

A =ross 6)erating /noe 6)erating ')enses

A N6/


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erating e/enses consist o%*eal estate ta'es*#ro)erty insurane*#ro)erty anageent and aintenane*Utilities*egal fees

*dvertising*nd aounting, to nae a fe(


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A ew more t(ings 0

*B6M ')ense atios for eah assetlass in eah ar4et*/noe stateents C ay inlude anyadditional inoe streas for the urrento(ner


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'te *" +et erating Income -+I.A ew more t(ings 0

*A Ca Rate as a $ay o MeasuringanInvestment and is not #1E RE#2R+ o t(einvestment"

*Ca Rate is a measurement rate o t(eirst year +I as it relates to t(e currentvalue o t(e investment"

*Is a Cap Rate complete?


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/@ &orulaNote: -a) ate does not aount for detservie and inoe ta' for the investent.

I+CME

RA#E 3AL2E

D D


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'te 5" Loan 'election


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$(at you need to 6now%

*8y)es of loans availale*8y)es of loan strutures "Eard Money, S(a), 5uity$*Whih lenders offer the loans you needF(ant*l(ays have your o(n trusted lender for usto)a4ages.


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'te 5" Loan 'election*-onsider the et Servie -overage atio "S-$(hen evaluating loan o)tions.

*S- (ill e )rovided y your lender.

*S- is the net o)erating inoe divided y theannual det servie.

*+ou (ill need to reflet and negotiate (hat loan

struture (ill e availale and ahievale for theasset.


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It7s imortant to do t(e ollowing%

*8uild relations(is wit( lenders"

*9ind a mentor"

*As6 :uestions"


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$e will use t(e ollowing loan structure or t(eremainder o t(e stes and analysis today"

*2%year ortgage, fully aorti;ed

*GH interest*Monthly )ayents*et Servie -overage atio "S-$ of 1.2%


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'te ;" Cas( 9low 8eore #a/ -C98#.


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*-&B8 is the heart of the analysis.

*8his (ill give you the aount of inoe efore ta'your )ro)erty is )roviding.

*8his is the enhar4 to alulate your return.


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*N6/ of I%0,000 F S- or 1.2% A I!0,000

*8his eans that I!0,000 is the a' annual det aN6/ of I%0,000 an over.

*/f the N6/ dro)s elo( I%0,000, S- (ill hangeand inrease the lenderJs ris4 of losing on theinvestent.


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+I o ,>>> ? D'CR o *"5= @ ,>>>8he aove analysis (ill have a result of:

*I10,000 a year -&B8 "N6/ of I%0,000 C S ofI!0,000 A I10,000 -&B8$ or

*N6/ of I!1KK.K7 a onth*Mortgage )ayent of I3,333 a onth*-&B8 of IG33.33 a onth


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*Based on an N6/ of I%0,000,(ith a S- of 1.2%, the a'

loan aount (ould eI!31,G3G.

*With an as4ing )rie of

I%00,000 "or a 10H -a)ate$, you (ould have to )utdo(n IKG,1K1.!%.


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'te 4" Calculating Returns


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Determine t(e ma/imum loan amount and

down ayment based on%

*Net 6)erating /noe "N6/$ of I%0,000*et Servie -overage atio "S-$ of 1.2%

*nnual et Servie "S$ of I!0,000*oan C GH interest, fully aorti;ed over 2% years*-urrent as4ing )rie of I%00,000


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Comare t(e ,>>> C98# you receive againstt(e down ayment amount o


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Cas(onCas( Return -CC. is%

*#(e irst year7s Cas( 9low 8eore #a/ -C98#. ? InitialCaital

,>>>?


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Internal Rate o Return -IRR.% rate of return earned on eah dollar, for as longas it stays inside the investent.More a))ro)riately, the disount rate, if you add

u) all the future ash flo(s, redued to )resentvalue (here that total e5uals the initial a)italinvestent. 8hat )erentage (ould e the/nternal ate of eturn.


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'te 4" Calculating ReturnsIn order to ac(ieve a desired IRR o *>,

determine%

*Amount at w(ic( you need to sell t(e roerty*$(en you would need to sell

-Assuming all t(ings remained t(e same inside t(einvestment over t(e (olding eriod".


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"uggestion: #ou may $ant to

usethe %&'()II to complete thisad*anced step.

*" ->> G ,>>>a" ,>>> sales rice in =

years H>,>>> o initial

urc(ase.in t(e C+, = 6ey"


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4" &us( old 6ey t(en IRR 6ey

=" IRR @ *>";4

#ou could also achie*e thisresult yputting do$n /(0((( less ofinitial capital.


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Case 'tudy


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A roerty is currently on t(e mar6et or a salesrice o ,>>> wit( a Ca Rate o K"

$(at urc(ase rice would you need to ac(ieve

to receive a K CC return

Case 'tudy


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'te *% 8he N6/ "if real$ should e LLLLLLLL ased ona 9H -a) ate and ar4et )rie of I7%0,000.

'te 5% /f the N6/ is IK7,%00 and you 4no( that yourlender has a loan )rogra of GH interest, fully aorti;ed

over 2% years, no )oints, and a S- of 1.2%, your a'nnual et Servie "S$ (ill e: > ? *"5= @ AD'

Case 'tudy


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'te ;% IK7,%00 N6/ I%!,000 S A I!,%00 a onth A I13,%00 -&B8 A I1,12% a onth

'te 4% onthly )ayent of I!,%00 onsisting of GHinterest over a 2%year ter (ill ring the a' loan aount

to I%G3,0!0. -o)are that to your)urhase )rie of I7%0,000.

Nou will (ave to ut down andreceive > a year" #(e CC is B"

Case 'tudy


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'te ;% IK7,%00 N6/ I%!,000 S A I!,%00 a onth A I13,%00 -&B8 A I1,12% a onth

'te 4% onthly )ayent of I!,%00 onsisting of GHinterest over a 2%year ter (ill ring the a' loan aount

to I%G3,0!0. -o)are that to your)urhase )rie of I7%0,000.

Nou will (ave to ut down andreceive > a year" #(e CC is B"

Case 'tudy


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+ou ould loo4 at the follo(ing to ahieve 9H -6-:

1. o(er your as4ing )rie.

2. hieve a higher N6/.

3. =et a lo(er interest rate.

!. ny oination of the aove.1ll of these $ill get you there2 3et4s loo52

Case 'tudy


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By reduing the as4ing )rie to I73%,000 or y 2H, a -6- of 9H an eahieved.

/f you inrease the N6/ y 2H a year "I1,3%0$, your N6/ (ould eI1!,G%0, giving you a -6- of 9H.

n interest rate of 7.7%H, ut 4ee)ing onthly )ayents at I!,%00, (ould)rodue a -6- of 9H.

Case 'tudy


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=68 US8/6NS?

Case 'tudy


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Westfield North Building, 2730 UniversityBlvd, Ste. 200, Wheaton, Maryland 20902

3019!91771 "#hone$3019!9%!!1 "&a'$

(((.)ditraining.net

We Thank You and hope to

see you again!

ByD. Scott Smith, CCIM

443.691.8153

www.expertcre.com
http://www.expertcre.com/http://www.expertcre.com/

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