Make Money with Affordable Apartment Buildings and Commercial Properties

GARY W. ELDRED, PHD, has invested successfully in real estate for more than twenty-five years and has served on the graduate business school faculty at Stanford University and the University of Virginia. One of America's top-selling real estate authors, Eldred's other books include Investing in Real Estate, Fifth Edition, Trump University Real Estate 101, and Make Money with Flippers, Fixers, and Renovations, Second Edition, all from Wiley.

• Acknowledgments xiiiIntroduction: How to Start 1Develop Your Analytical Abilities 1Develop an Entrepreneurial Spirit 2Uncommon, Yet Essential 2Entrepreneurs Create Value for Themselves and Their Customers (a.k.a. Tenants) 3Market Savvy: Systematic Strategic Thinking 51. Profit with Commercial and Multifamily Properties 7Advantages of Commercial and Multifamily Properties 7Cost of Acquisition 8Cash Flows Relative to Price 9Search Time 13Management 14Trade Up Tax Free 15Owner Will Carry Financing (OWC) 17Possibilities to Create Value 18Summing Up 202. Craft Your Market Strategy 22It All Depends 23A Strategy of Your Own 23PVP: The One Constant Rule 23The DUST Strategic Framework: Questions to Answer 24Entrepreneur Objectives: Know Thyself 26Talents, Inclinations, and Resources 26Assess Your Finances 28Frame Your Due Diligence 30Identify and Fully Describe the Physical Property 31Understand Your Bundle of Rights and Restrictions 36Where Should You Invest? 48Time Period 493. Where’s the Local Economy Headed? 50Economic Base Matters Greatly 51Alamo, California (San Francisco Bay Area) versus Terre Haute, Indiana 52Authors Neglect Economic Base 52Benefit from the Lessons Learned 53Where to Get Data 55Will the Population Grow? 55Enclaves of Existing and Potential Growth 55Find Out the Actual Numbers 56Beware of False Negatives 56Is the Number of Jobs Increasing? 57What Was the San Diego Connection? 59Forecasting Recovery 59Cost of Running a Business 60Businesses and Employment Migrate to Lower-Cost Cities, States, and Countries 61Cost of Living for Employees 61Quality of Life 62Quality of Life Also Attracts Wealth 63Community Attitudes and Actions 64Entrepreneurial Spirit 65Concluding Remarks 664. Outperform the Competition 68The Competitive Battle 69Four Good Reasons to Inventory, Inspect, and Critically Review Competitors 69Where to Invest 69Market Information Gives You Negotiating Power and Confidence 71Searching for a Preferred Value Proposition (PVP) 72Constructing Your Financial Pro Formas 73Identify Your Competitors 74Quickly Adapt to Change 74When Markets Tighten 75More Practical Implications 75What to Look For: The Location 76Aesthetics 77School Districts 77Property Taxes and Services 78Crime Rates 79Accessibility 79Trendiness 79Public Transportation 80Who Are the Residents and Recent Homebuyers and Tenants? 80Site Features 81The Exterior of the Building 81Play the Tenant 82Inspect the Interiors of Competing Units 83Aesthetics: How Does the Unit Look, Feel, and Sound? 83Livability: Unit Size, Room Count, and Floor Plan 84Energy Costs 85The Rental Process 865. Choose the Best Target Market 88How to Create a PVP 88Diversity Rules 89Demographic Differences 90Psychographic Differences 93Avoid Standard Labels; Picture Your Actual Renters 98Hitting the Bull’s Eye 100Find Unique and Intense Needs 100Bull’s Eye Lease Assessment 101Throw Away Standard Operating Procedures 101How Do You Identify the Wow (PVP)Features for Your Tenants? 102Informal Conversations 102Pay Attention 103Talk with Insiders and Experts 103Use Questionnaires 104Focus Groups 105Anticipate and Adapt to Change 106The Age Wave 106Echo Boomers 107Local Trends and Changes 1086. Is the Property a Good Deal? 109How Much Would It Cost to Construct the Property Today? 110The Construction Cycle 110Implications for Investors 111Local (Regional) Recessions 113Per Unit Measures 113Per Apartment Unit 113Per-Square-Foot Measures 115Price Per Front Foot 117Gross Rent Multipliers 117Capitalized Value 118Estimate Market Value 122Anticipate the Future; Pay for the Present 124Cash-on-Cash Return 125Growth in Equity 127Don’t Settle for Low Rates of Appreciation 1297. Collect More Rents 130Never Accept Average 131Stand Out and Stand Above 131A Strategy of Your Own 132Verify Current Rent Collections 133Examine All Leases and Rental Applications 134Interpreting the Rental Information 134Rent Collections, Not Rental Rates 135Talk with Tenants 135Your Competitive Market Analysis 137Set Your Rents with Market Savvy 138The Myth of Market Rent Levels 139Rent Levels and Vacancy Rates 140The Myth of the Market Vacancy Rate 141Think Rent Range, Not Rent Rate 142Raise Rents without Substantially Improving the Building 142Confirm Your Suspicions 142Why Owners Underprice Their Units 143Investor Opportunities with Stage-of-Life Sellers 144How High Can You Go? 146Selective Increases 148Dealing with Current Tenants 149Can You Boost Your Rent Collections by Lowering Rents? 150An Extreme Example of Overpricing and Market Ignorance (or Fanciful Dreaming) 150A Purchase Opportunity 151Time-Sensitive Rental Markets 1528. Build Equity Fast with Sharp Interiors 153The Entrepreneurial Imperative 153Too Many Investors 153Too Few Sellers 154Not Words of Discouragement 155Your Target Market 155Visualize Your Tenants 156Your Suggestion Box 157Figuring Payback 157Fast Buck versus the Last Buck 158Set Your Budget for Improvements 158The Sum Effect 160The Interior of the Units 160Sharpen the Aesthetics 161Special Touches 163Safety, Security, and Functionality 163Rightsizing Room Count/Room Size 165Create More Storage 167Check Noise Levels 169Overall Livability of the Unit 1709. Generate More Income 171Your Building Sends an Advertising Message 171Clean Up the Grounds 172Yard Care and Landscaping 172Sidewalks, Walkways, and Parking Areas 173Fences, Lampposts, and Mailboxes 173The Exterior of the Building 174Name Your Building 179Signage 182Curb Appeal: Summing Up 182Collect More than Rent 183Laundry 184Parking 184Build Storage Lockers 185Cable/Satellite 185Add Other Amenities or Services 18610. More Creative Ways to Make Money 187Tailor Your Lease Agreements 187Competitive Advantage 188What Terms Might You Negotiate? 191Should You Furnish Your Apartments? 198All Price Levels 199High Payback 199Warning: Don’t Pay a Premium Price for Furnished Apartment Buildings 201Improve the Neighborhood 202Become a Neighborhood Entrepreneur 203The Huge Payback 204Conclusion: Investing in Action: The Bayside Apartments 206Entrepreneurial Strategy 212Real Estate Entrepreneurs Outperform All Other Investors 213Only Investors Perform 214Entrepreneurial Real Estate Investors Perform Best of All 214Index 217