Multifamily investment term #1: net operating income

We've covered how the Dane County multifamily real estate market has changed, presenting investors with new opportunities that weren't available a few years ago. Due to this clear market shift, we've created a new web site, MadisonIncomeProperties.com, which we've designed to help Dane County investors with their multifamily real estate goals. We'll be adding more content to our site over the next several weeks, including a multifamily real estate search tool, so please check back often as we round out our site.

One of the tools we'll be adding soon is a glossary of investments terms, and we'll begin by covering these terms one-by-one in our blog. The first investment term that we'll cover is net operating income.

The net operating income (NOI) is the cash flow that remains after a property's operating expenses are subtracted from operating income. NOI is an important investment concept, as it's used as the basis for several other key investment calculations.

Net Operating Income = Operating Income - Operating Expenses

Operating income is the income that results from monthly rents, parking fees, laundry income, parking fees, etc.

Operating expenses are those expenses that are related to the operation of the property, such as taxes, utilities, insurance, maintenance, management fees, payroll and administrative expenses. Note loan payments, amortization and appreciation are not considered operating expenses.

Many times sellers of multifamily real estate publish the net operating income associated with a particular property. As an investor, it's important to know the details behind this number. Specifically:

• Are are all operating expenses realistically accounted for in the calculation?
• Is the operating income based on the ideal scenario with a vacancy rate equal to zero? Or is it based on historical performance which accounts for the actual vacancy rate?

Stay tuned. We'll be covering several other key multifamily real estate terms in the near future.

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

How some investors are using their cash

We recently wrote about 4 brothers who are using their cash to invest in multifamily real estate - a long term approach to real estate investing. Other investors are using their cash in a different way.

We're working with one local investor group that has amassed a large sum of money for short-term real estate investment. The investor group uses its cash to buy distressed properties, which are then rehabbed and sold for a profit. Because this group pays cash for its investments, it can close on a property in a matter of a few days once an offer is accepted. This makes this buyer a good fit for the distressed property owner who needs to unload a property quickly - and without any worry of the deal falling apart due to a financing or inspection contingency.

We're also talking to an out of state investor group about its goals. This group has successfully implemented an investing system in several different markets around the country. In each market, the group uses its cash to buy 3 to 10 properties a month. Similar to above, these properties are rehabbed and then sold for a profit.

The advantage of the buy, fix and flip approach mentioned above is the investor receives a return on his investment in a matter of just a few months. In fact the investor can re-invest his money several times throughout the year for a very nice profit.

The disadvantage is there is more risk. These investors mitigate their risk by having clear standards. They focus on starter homes, where there is a relatively strong demand for the supply that is on the market. They "buy right" (ie at a good price), which gives them some cushion in case something unexpected pops up during the rehab process. They also develop detailed and realistic plans around the acquisition, rehab and resale of their investments, so they can reasonably estimate their returns.

We expect to see more and more short-term investors due to the growing number of foreclosures in Dane County. Even when foreclosures start to subside, distressed properties will continue to play a large role in the market for years to come. Keep in mind foreclosure levels right now are several times higher than they were just a few years ago. Also, it typically takes 6 to 18 months for a foreclosed home to work its way onto the open market. The irony is the number of distressed properties will continue to increase even as the number of foreclosure filings begins to subside.

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Upcoming Madison first-time home buyer seminars

The home buyer tax credit has been extended and enhanced, but in order to take advantage of the credit you must have your offer accepted by April 30th 2010 and your home closed by June 30th 2010. The deadline is not far away considering all of the steps that go into buying a home.

If you're new to the home buying process, you should consider attending one of the upcoming UW Credit Union or Dane County Housing Authority seminars. Both are no-nonsense seminars that provide a good introduction to the lending, inspection and purchasing pieces of the home buying process. With a little education under your belt, you will have the knowledge you need to go about your purchase in a thorough and efficient manner - and meet the deadline for the tax credit.

The next UW Credit Union Seminar is Tuesday, January 12th from 6:30 to 8:00 PM.

The next Dane County Housing Authority seminar is a two-part series with sessions on both Tuesday, December 1st and Tuesday, December 8th. Both sessions run from 6:00 to 9:00 PM. Click here for more course details and registration info.

Have a great weekend,

Dan Miller, Keller Williams Realty and DaneCountyMarket.com

Two distressed properties, and many more on the way

We recently wrote about two duplexes that are worth a look from investors who are seeking to cash flow multifamily properties. Below are two other intriguing properties, one a home and the other a condo.

This 3 bedroom home at 125 N. 5th Street in Madison is priced at $94,900 and almost $60,000 under assessment.

This large 3 bedroom condo at 619 Wood Violet Lane in Sun Prairie is priced at $110,000 and over $69,000 under assessment.

Both of these properties are lender-owned. And both require some work, so they're a good fit for someone who is willing to invest some sweat equity in order to improve the value of their investment.

There are plenty of properties like these on the market right now. And there will be plenty more coming down the pike as more and more foreclosures work their way through the system and onto the open market.

One of the ways we learn about properties like these is by implementing a key word search of the MLS which sends us an email whenever a listing with one of the key words hits the market (or when an existing listing with a key word match undergoes a price reduction). For example, we have this search currently set up for an investor:

"forecl*, *as is*, *bank*, *corp*, *fixer*, *flip*, *investor*, *lend*, *lien*, *reo*, *short sale*, *subj*,* tlc*"

We'll discuss how this investor is leveraging the market in a future post.

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Good deals in a buyer's market (two ways to find them)

A few days ago we downloaded from the South Central Wisconsin MLS all of the email addresses for agents with a single family home listing in Dane County. This amounted to almost 1,000 email addresses. Then we sent an email on behalf of an investor letting these agents know what our investor is looking for.

We've received a ton of responses, and they are still coming in. Most of the properties that we have learned about don't fit this investor's needs, but there are a few in our list that we will be looking at more closely.

There are two advantages to the mass email approach that are worth noting. First, for some properties we receive a lot of information that isn't available from the online listing. In some cases the client has given the listing agent permission to share his level of motivation, or the client has given his agent permission to share how low he is willing to go with price. Another nice advantage is we now have a large network of agents that is keeping us in mind as other properties become available in the future.

Over the next several weeks we'll share some properties that show some promise for the buyer that is looking for a good deal. And today we'll start with two duplexes located at 3010-3012 and 3014-3016 Union Street on Madison's East Side. Both buildings are listed at $117,000 with rents on each unit at $600 and higher. Run some numbers on these properties and you'll see they look pretty good, pretty quick. Also keep in mind if you plan to owner occupy a duplex, you could be eligible for the enhanced tax credit.

We learned about these two properties because we have an automated search set up that sends us an email anytime a new multifamily listing enters the Dane County market, as well as anytime an existing listing undergoes a price change. These two properties recently underwent huge price reductions, which is why we're sharing them with you right now.

Have a happy and safe holiday,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Strangely enough we're assisting two different pairs of brothers with their investment plans right now.

Pair #1 already owns 2 duplexes and is in the process of expanding its portfolio. Last week these two brothers put in an offer on an 8-unit, and we're waiting to see how this one turns out.

Pair #2 is new to the game. These two brothers are looking to buy their first duplex using the money they have saved between the two of them.

Both sets of brothers are at different points in their investment plans, but they are similar in many ways. They are all planners and goal-setters, and they all believe in the "get rich slow" formula that multifamily real estate offers. All of these brothers are seeking a property that cash flows while they pay down their mortgage and their property appreciates in value over time. They are aware of the tax benefits that come with multifamily real estate, and they plan to leverage their equity in future years to buy additional properties.

Both sets of brothers are persistent and patient. They have clear standards, and they are willing to evaluate 30 properties in order to find the one property that meets their criteria.

As we've stated before, it's a buyer's market in multifamily real estate. The irony is not many people are buying. Here's our latest multifamily real estate report. You'll find more useful information at MadisonIncomeProperties.com, including how we help you buy and how we help you sell multifamily real estate.

Have a good day,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Video tours are a great idea for some listings

We're starting to use professional home video tours for our listings because the quality of the product offered by Whirligig Online Marketing is excellent. Video tours are a great fit for homes with quality upgrades and professional staging. They give buyers a closer look at what each listing has to offer. Because of this, we're happy to invest in professional tours as part of our marketing plan.

For example, take a look at the video tours for these 3 new listings (click the "video" tab along the top menu).

• 1714 Bellewood Drive, 5 BR/4.5 BA, Waunakee Parade Home - $995,000
• 1407 Blue Ridge Trail, 4 BR/4.5 BA, Waunakee Parade Home - $765,000
• 3317 Westview Lane, 3 BR/2.75 BA, Madison Arbor Hills - $299,000
  

For a list of over 25 marketing ideas, check out our online marketing plan. You can view it here on the how we help you page at DaneCountyMarket.com.

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

An overview of the enhanced home buyer tax credit

The $8,000 first-time home buyer tax credit has been extended into the year 2010, and now "long-time" home owners who sell one home and buy another are eligible for a $6,500 tax credit. A long-time home owner is defined as someone who has owned and occupied a home as a primary residence for at least 5 consecutive years out of the previous 8 years.

Tax payers who plan to claim the credit need to have a binding contract by April 30th 2010, and must close on their property by June 30th 2010.

If you're planning to take advantage of the tax credit, we recommend you plan on making your offer by April 1st. In case your offer does not get accepted, you'll want to allow yourself some time to find another property that meets your needs. And don't forget right now is a great time to shop for a home. Buyer traffic is lower right now than at any other time during the sales year. That means less competition from other buyers and more leverage with sellers.

For more information on the enhanced tax credit, you can check out this article on the buying real estate page at DaneCountyMarket.com.

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Dane County distressed property sales on the rise

The Dane County Distressed Property Index rose slightly in October to .24, indicating approximately 24% of the home and condos sales in October were related to foreclosure. The chart below shows the index has quadrupled since January of 2006.





On a related note, the Mortgage Bankers Association announced today in its National Delinquency Survey that 14.41% of all loans were either in foreclosure or at least one payment past due at the end of the third quarter 2009. That's a new record.

With a rising number of distressed properties and lower prices, we're seeing a lot of interest from buyers who might not otherwise be in the market. This includes home shoppers, and investors, too. In the last several months we've met multiple buyers who have been saving their cash for the right moment to jump in. And many of them are jumping in right now.

Soon we'll share some stories of different buyers and how they are leveraging the market.

Have a good Friday,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

UW Credit Union has joined the DaneCountyMarket.com web site

We're excited to announce the UW Credit Union has joined our DaneCountyMarket.com web site. This means our web site users can now search for properties, research the market, check the latest mortgage rates, and apply for a loan all from one convenient online location.

Speaking of mortgage rates, loans for 30 year fixed rate mortgages were available for 4.75% yesterday. You can check out today's rates by going to our home page.

Like us, UWCU is a provider of good consumer information, and soon UWCU will be offering educational articles that will be available from our site.

Have a great day,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Dane County home and condo sales up again October

Our preliminary statistics from the South Central Wisconsin MLS are in for the month of October.

Dane County home sales increased for the fourth straight month on a year-over-year basis. Home sales jumped from 269 in October of 2008 to 332 last month, an increase of 23%.

Dane County condo sales grew for the second straight month. Condo sales rose from 80 in October of 2008 to 114 in October of 2009, an increase of 43%.

Prices for both homes and condos were lower, as much of the market was focused on taking advantage of the first-time home buyer tax credit. Because of this, we're expecting higher sales and lower prices once again in November.

For more details, your can check our our full report at DaneCountyMarket.com .

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Five Northern Bay Condos up for auction on Saturday, December 12th

Five of the Northern Bay Condos on Castle Rock Lake will be put up for auction by Micoley & Company on Saturday, December 12th, at 11:00 AM. Registration for the event starts at 10:00 AM. The minimum acceptable bid will be $95,000 or $125,000, depending on the unit. For more information on the auction, you can check out this link from Micoley & Company.

Lately we've seen a number of condo developments getting serious about moving their inventory, either through public auctions or dramatic price reductions. Condo inventory remains very high. Don't be surprised if we see additional fire sales in the coming months.

Have a good weekend,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Dane County housing starts sluggish in October

We're almost ready to publish our Dane County existing home sales data for the month of October. October will mark the fourth straight month of increasing house sales (and the second straight month for condos). Clearly the home buyer tax credit is having an effect on the sale of existing homes and condos, especially in the lower end of the market.

However, Dane County housing starts remain sluggish. A total of 49 housing starts were recorded in October, compared to 52 in October of 2008, a decrease of 5.8%. Here's the monthly trend dating back to January of 2005.





Year-to-date, housing starts are down 17.6% compared to the same time period last year.

We do expect housing starts to gain some momentum with the implementation of the enhanced home buyer tax credit. We'll have more info about the credit soon.

Thanks to Dominic Collar from MTD Marketing Services of Wisconsin for sharing his data. For more information, you can contact Dominic directly at 920/993-8435. You can also check out our full housing start report on the real estate trends page at DaneCountyMarket.com .

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

154 Dane County foreclosure filings in October

A total of 154 Dane County foreclosures were filed in October, up 1.3% from the 152 foreclosures filed in October of 2008. Although only up slightly from last year's total, this October's number represents the third highest monthly total dating back to October of 2008.




For our full foreclosure report, you can check out the economic trends page at DaneCountyMarket.com .

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

You're buying a new home. Should you work with the listing agent? A buyer agent? An attorney?

We recently showed in this post why working with a good buyer agent can be a huge benefit to a home buyer. A listing agent can't provide you with the level of service and advocacy that you should expect from an agent in today's market. Remember, the listing agent works for her client, the seller. So when it comes to choosing between working with the listing agent and a good buyer agent, a good buyer agent is the clear choice.

But what about an attorney? We fully support any buyer who wishes to hire an attorney. An attorney provides peace of mind. She brings a different skill set to the table and helps to make sure that you, the buyer, are protected from all angles. A good attorney can be tremendously helpful during the home buying process.

Should working with an attorney preclude you from working with a buyer agent as well? We don't think so. But that is the perception held by more than a few people. Some folks believe the buyer agent and the listing agent will always be in cahoots, that both agents will conspire to ensure "the deal goes through". That's not part of our game.

Our firm belief is that if you decide to hire an attorney, you should have a good buyer agent assist you as well. It should be a team effort. And here are 3 big reasons why.

1) A good buyer agent brings market expertise to the table. The market is changing every day, and the market is not an attorney's focus. I go back to this post. Could most attorneys deliver the level of market expertise that this buyer received from his agent? I don't think so.

2) A good buyer agent is available to assist his client throughout the entire transaction, including the home inspection and final walk through. As a consumer making the biggest purchase of your life, don't you want someone to be by your side when your inspection takes place? You should. If issues arise during your inspection (as they often do), your buyer agent is a great resource to help you strategize your next steps - because your agent was at your side during the inspection and saw the same things you did. And what about the final walk through just prior to closing? Would you rather be joined by the listing agent (who represents the seller) or a buyer agent (who represents you)?

3) A buyer agent costs you nothing. And a good buyer agent is with you for the long haul. These days our buyer clients average about 2.5 offers per closing. That means our typical buyer is making 2 or 3 offers before he successfully closes on his home. Every time we go to bat for our clients, the cost is the same - nothing.

We think working with a good buyer agent is a no-brainer, but it's important to find someone you can trust. We'll provide some tips for finding a good buyer agent in a future post.

For more information on buyer representation and how the buyer agency agreement works, you can check out this link at DaneCountyMarket.com .

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

A very cool home inspection web site

Home inspector Brian Paull from Premier Inspection & Consulting has a very useful web site for anyone who is interested in learning more about home maintenance and the home inspection process. Brian's site includes a description of the home inspection standards of practice and a section on frequently asked questions, as well as information on radon, mold, and many other topics such as energy efficiency, electrical safety, asbestos, child safety, elderly safety and more.

For more useful inspection and testing information, you can check out the inspection and testing resource page under buying real estate at DaneCountyMarket.com.

Have a good day,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com

Dane County multifamily inventory still climbing

As of October 31st the months of inventory for Dane County multifamily real estate stood at 41.9 months. That's more than twice the inventory for Dane County condos, and almost 5 times the inventory for Dane County homes.

With high inventory and low sales, it's a great time to learn about multifamily real estate. Some sellers are becoming more flexible with pricing, and we're seeing more and more multifamily foreclosures.

If you're interested in learning more about multifamily real estate, please feel free to join us for our FREE workshop at 6PM on Tuesday, November 17th, at Bishop's Bay Country Club.

In the meantime, here is some additional useful information: You'll find our latest multifamily real estate report here, and information on how we assist our investor clients here. We've also launched a new web site - www.MadisonIncomeProperties.com - that makes it easy to find all of our information on multifamily investing. We'll be adding more useful content soon.

Have a great Tuesday,

Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com