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Archive for the ‘Miscellaneous’ Category
Wednesday, September 8th, 2010
8-10% cap rate deals on investor rental properties in Denver metro area
With 2010 Colorado housing foreclosure numbers running ahead of 2009 and likely to increase (RealtyTrac foreclosure forecast). Many current homeowners will be forced into rental housing for quite a few years to come. The Denver metro area market still has positive net in migration and
household growth (Population growth forecast). Although this means that single family residential housing is unlikely to appreciate significantly any time soon, these same statistics and trends bode very well for the rental property market.
There are also some macro economic trends that we believe make certain rental properties very attractive from an investment perspective.
- Less governmental support for home ownership – less mortgage market support, stringent loan underwriting, higher FHA insurance premiums will all contribute to a lower rate of home ownership in the U.S.
- Mobile population – Our population is becoming increasingly mobile.
- Public perception that home ownership is not a guaranteed investment.
- If you believe that at some time in the future, inflation will return, then rental rates can be quickly raised to keep pace with inflation.
- There are a great many risks to the macro economy right now. - Five Economic doomsday scenarios for the US economy
As more and more households become renters (whether by choice or not), the residential rental market will outperform most investment asset classes. However, most investors will fail to capture this return for a number of reasons:
- Most investors are NOT suited to be landlords.
- Rental properties need to be purchased carefully – not only for the ‘right’ price, but in the right price points, neighborhoods, with an eye on taxes, HOA dues, etc.
- Most potential landlords cannot deal with a large number of tenants.
- Most investors mis judge which properties will provide the best rates of return. – They probably are NOT the glamorous properties, but this is about making money, not show homes!
We have analyzed the rental market in the Denver metro area and identified the segments that offer the most attractive returns with the least risk. We have provided an example below using our affiliated property management division at Surety Realty Inc.
| Property Price |
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$ 54,950.00 |
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| Monthly Rent |
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$ 800.00 |
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| Gross annual rent |
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$ 9,600.00 |
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| Taxes – Annual |
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$ 564.00 |
| HOA – monthly |
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$ 239.00 |
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| HOA – annual |
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$ 2,868.00 |
| adjusted gross income |
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$ 6,168.00 |
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Leasing commission – one months
rent |
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$ 800.00 |
| annual mgmt fee – 5% of rent |
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5% |
$ 480.00 |
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| Net Annual income |
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$ 4,888.00 |
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| Capitalization rate |
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8.9% |
30 years later…nothing has changed
In the early ’80′s, when the Savings and Loan debacle was occurring, mortgage rates we’re between 12-14%! At that time there was a rule of thumb that used a 6x gross rent multiplier for
evaluating whether a potential rental property offered a suitable rate of return on investment. By looking at the example above, you can see the same rule applies today ($9,600 x 6 = $57,600). However, today’s interest rate environment is extremely different than it was in the early 1980′s. Mortgage rates today are hovering around 4.25%!
The ‘real’ rate of return is TWICE what it as
This makes the ‘old’ yardstick of a six times gross rent multiplier relevant, but in need of evaluation. IF a 10% cap rate was attractive in a 12-14% mortgage rate environment, then a 10% cap rate in a 4.25% mortgage rate environment should be at least TWICE AS ATTRACTIVE!
If you are interested in making a safe, secure, un-leveraged, investment return of 8-10% on your capital with a built in inflation hedge as well, then contact us today and we will discuss your situation with you.
Tags: buying Colorado rental properties, Colorado rental properties, investor rentals in Denver, Purchasing rentals in Denver, rental units in Denver
Posted in Colorado Real Estate and Homes, Commercial Colorado Real Estate, Miscellaneous | Comments Off
Wednesday, August 25th, 2010
Considering Buying a Car Wash – Watch out for these red flags!
As part of the commercial real estate side of our brokerage, and do to experience and some great contacts in the industry, we regularly help buyers purchase and help owners sell car washes. And while most owners are ethical and honest individuals and business people, we occasionally hear and see evidence that makes us very thankful that we don’t deal with scum.
Car washes as businesses have matured from an economical way to hold onto land in the hopes of future redevelopment and appreciation potential into active part time businesses that follow many of the same rules as other companies with respect to advertising, return on investment, cost control and sales.
A few things that potential buyers should always be on the lookout for when considering a car wash purchase:
- Equipment repairs – wash equipment undergoes heavy use, you should ask for receipts from qualified repair companies as well as check the equipment thoroughly for examples of poor quality, repair, and wear and tear.
- Reconciliation of Gross revenues – bank statements should match credit card receipts, cash receipts and financial statements.
- Correlation of utilities with revenues – If a car wash is undergoing revenue growth, you should see and corresponding growth in water and electrical usage.
- Correlation of COGS with revenues – If a car wash is undergoing revenue growth, you should see a correlation with soaps, towels, and other COGS for the increased number of washes being used.
There may be legitimate reasons why any of the above do not apply exactly to every wash, but the reasons should be thoroughly investigated and verified to ensure that the seller is not improperly inflating there revenues.
Inflating Car Wash revenue is easy
Since car washes are primarily cash businesses, the easiest way to inflate revenues, is simply to plug in quarters, tokens, and dollars into the self serve bays. Since no water or soaps would be used, as well as no additional electricity to heat the boilers, or power the washes, this type of increase should be fairly easy to spot. Also, the increased revenues will not be in the automatic bays generally as they would automatically run costing the owner (and potential seller) money. The difficulty in detecting this type of fraud is if an owner has the financial capacity and intelligence to use additionally soaps, water and utilities, and to keep the percentages of auto bay washes consistent with the self serve washes.
There are other red flags as
well
However, we don’t want to give away all our forensic accounting and physical inspection tips and tricks. Instead suffice it to say that purchasing a car wash is slightly different than many types of business purchases and you need an experienced car wash real estate broker to assist you to help ensure you don’t get taken advantage of by an unscrupulous seller.
Tags: buying a commercial car wash, car wash real estate broker, inflating car wash revenue, red flags when purchasing car washes, warning signs when purchasing car washes
Posted in Commercial Colorado Real Estate, Miscellaneous | Comments Off
Friday, January 15th, 2010
Outdoor Activities in Denver, Colorado
Colorado is famous for its leisure activities – kayaking, canoeing, mountain climbing, skiing, hiking and many others. As the state capital, Denver is a truly unique American city – blending the urban metropolitan cityscape with the outdoors and serving as an important base for exploring the Colorado mountains.
Summer is generally the best time to visit Denver as winters are often bitterly cold, although the climate is mostly sunny all year round. However, in winter the region becomes popular with skiers and snowboarders from all across the USA and from other countries. The internationally renowned ski resort of Aspen can be easily be reached in a day and provides some of the best ski conditions to be found anywhere in the world.
One of the most popular outdoor activities is the Red Rocks Amphitheatre, which hosts regular concerts throughout the season. Famous acts who have performed here recently include Crosby and Depeche Mode. As the heat intensifies during July and August, an excellent way to cool off is to visit one of the 15 outdoor swimming pools in the city. Admission is just $2 for children and $3 for adults and a seasonal pass is available as well ($20 for children and $40 for adults).
Another popular outdoor attraction is Denver Zoo, which provides an excellent family day out in this 80 acre park, comprising of over 4000 animals (admissions prices in 2009 were $7 for children and £12 for adults). However, if you are comfortable with the heat, or you would prefer to visit Denver in the spring or Autumn, the Denver Botanical Gardens are a worthwhile visit. Despite Colorado`s dry climate, the gardens contain over 32,000 species of plants and during the summer months they are open from 9am.
If you would like to travel a bit further, take a trip west on the I70 to see the outstanding views of the summits of the Colorado Rockies. In winter this route can be treacherous so do be careful. A 70 mile journey south on the I25 will take you to the famous tourist attraction, `Garden of the Gods` – a stunning series of red rock formations which are popular during the summer months.
When travelling to Denver, most people suggest that the most convenient and efficient way of getting around is book a car hire which you would pick up from the airport. For car rental Denver airport offers anything from luxury sports cars to large minivan, all at various price ranges. You can also use the skyline service which can take you from the airport to your destination.
Posted in Miscellaneous | No Comments »
Wednesday, January 6th, 2010
Smaller and mid size banks are not repaying TARP funds
The ‘too big to fail’ big banks are rushing to repay the TARP funds across the country so that they can get out from under the executive pay restrictions, but that is generally not a concern at the community and regional banks. The Distressed Commercial Notes that are backed mostly be commercial real estate will be the biggest problem facing these smaller banks in 2010. That is because many of these loans are constructions loans, bridge loans or have their roll overs during the year and the banks will not be able to lend due to reduced appraisal valuations.
While overall the Troubled Asset Relief Program (TARP) is outperforming expectations and this is good news for taxpayers, most banks are still not lending. The smaller banks don’t have the executive pay levels high enough for them to rush to repay the TARP funds, and since they will face a large share of troubled commercial notes coming due in the next year they must preserve their capital. This is NOT good news for small business owners or the economy in general since most small business rely on community and regional bank lending for the expansion and operations.
And while note explicitly stated, it is also related to the goal of decreasing the overall number of banks in the country. The larger banks don’t have to have near the FDIC capital levels that are required of the smaller banks. Thus smaller and community bank shareholders are in a precarious position in 2010 and need to realize that the old ways of holding OREO and other distressed assets while waiting for an economic recovery and bank earnings to allow liquidation of the REO is probabaly not going to work this time.
Eventually the small and mid size banks will have to repay the TARP funds, the question is, will they be around long enough to do so?
Tags: commercial real estate notes, Distressed Commercial Notes, Distressed notes for sale, distressed real estate notes for sale
Posted in Miscellaneous | No Comments »
Sunday, April 12th, 2009
COOKING IN COLORADO
We now have beautiful up to the minute kitchens with bells and whistles galore! As I show homes with shining hardwood floors or beautiful tile, hard surface counters, Wolff ranges, pot fillers, etc., etc., they so often look like they have never been used. Cooking seems to be a disappearing art. I always told my children, “If you can read you can cook”. I still believe that but it also helps if you add a little bit of love in the process.
When I moved to Colorado, I discovered cooking was a little different. It takes much longer for potatoes to be done here than it does for example, in Missouri. I believe it all has something to do with altitude or is that attitude? Cakes take a few alterations, I have never managed to make meringue that does not “weep”, but my pie crust is incredible.
I understand that everyone is busy and most of the two+ people households have at least two of those adults working and some of the kids too. I also know what a trip to the grocery store can cost. In this particular economic climate we need to plan, plan, plan. Clipping coupons can be a chore but you can do it while watching your favorite T.V. program. You can also use some of your computer time to download coupons. You would be amazed how much money you can save through this one activity.
The largest group I have ever cooked for is 150 which did take a lot of planning. You can plan on a much smaller scale. One of the meals that my grandkids enjoy (and it’s easy!) are Annazi Beans. They don’t have to be soaked, they are full of protein and they taste good. You can put them on when you get home from work say 6:30 and they will be done by the time the news is over and you have the next days dinner done.
- 1 package Annazi Beans
- Water to cover
- Add either vegetable broth or chicken broth for flavor
- Add 1 large onion coarsely chopped
- Add 2 – 4 cloves garlic
- Add chopped
carrots
Then let your imagination go. Add any spice that sounds good to you. I like parsley, kosher salt, and fresh ground pepper. How about tomatoes? Those taste good. Add peppers if you like them. Add hot sauce if you want. You can add orzo or rice. A green salad, buttered bread or cornbread and you have a great meal. We have some really farmers markets that will be opening soon. Take advantage of the fresh produce locally grown and add even more taste to your meals.
If anyone out there would like meal suggestions or recipes, just contact me back. I love to cook and sharing is even more fun.
Posted in Miscellaneous | No Comments »
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