the-abcs-of-real-estate-investing-ken LifeFeeling

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ADJUSTED EXPENSESAt this point, we have the numbers we need to complete our analysis. To do this, we getout our calculator and run the expense totals. Keep in mind that we haven’t visited theproperty and once we do, we may adjust these numbers again based on what we find duringour inspections. Here are our totals:Repairs and Maintenance $838Utilities$409Real Estate Taxes $425Insurance$125Replacement Reserve $150Total Expenses$1,947/unit$2.88/sq. ft.ExpensesSeller Prior Year OurPer Unit Pro Forma Actuals Projected$6,700$3,273$3,400$1,000$1,200$8,010 $8,010$3,273 $3,273$3,400 $3,400$1,000 $1,200$1,200$15,573 $15,683 $17,083Take a look at the total expenses line to see how the numbers differ. As you can see, therange is significant, from $15,573 to $17,083. That’s a $1,510 ($17,083 - $15,573)difference between our projected expenses to operate the property and the seller’s pro formaexpenses. Had you bought this property without going through this exercise, that $1,510may have been money right off your bottom line.Step 3: Determine Net Operating IncomeAfter you have determined your income potential for the property and you have a goodestimate of the expenses, you need to determine the net operating income (NOI). This is avery important number because you will eventually base your offer on it. To calculate it,you simply subtract your expenses from your income. Hopefully you end up with a largepositive number. The larger the better! But before you get too excited when you see thenumber, which is one indicator of net cash flow, remember that this number does notinclude your loan payment. The loan payment will be determined by how much you pay forthe property, your down payment, and the interest rate.NOI (Net Operating Income) = Income Expenses
IncomeSeller Prior Year OurPro FormaGross Scheduled Rent $48,000Less: VacancyNet Rental IncomePlus Other IncomeTotal Income7% $(3,360)$44,640$480Actuals$45,120 $41,800Projected$41,904$(2,933)$38,971$480$39,451Repairs and Maintenance $838ExpensesSeller Prior Year OurPer Unit ProForma Actuals Projected$6,700 $8,010 $8,010UtilitiesReal Estate TaxesInsuranceReplacement ReserveTotal Expenses$409$425$125$150$1,947/unit$2.88/sq. ft.$3,273$3,400$1,000$1,200$15,573$3,273$3,400$1,000$15,683$3,273$3,400$1,200$1,200$17,083Now is the easy part. Take your projected total income of $39,451 and subtract yourprojected total expenses of $17,083 to get your net operating income of $22,368.Let’s look at NOI a bit closer to portray the full picture:This table reveals a brutal fact: the seller’s pro forma net operating income is a full$7,179 ($29,547 - $22,368) higher than our projected net operating income.Income Total(Less) Expense TotalNet Operating IncomeNet Operating IncomeSellerPro FormaPrior YearActualsOur Projected$45,120 $41,800 $39,451$15,573$29,547$15,683$26,117$17,083$22,368
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RICH £4 DAD• OVIM'.KSFOREWORDBYR
Page 3 and 4:
This publication is designed to pro
Page 5 and 6:
ContentsForeword Learn from an Expe
Page 7 and 8: Chapter One: The Myths and the Magi
Page 9 and 10: Myth #2: You Need to Start Small-Bi
Page 11 and 12: Take any ten-acre piece of land. Le
Page 13 and 14: have on your team. And you’ll fin
Page 15 and 16: I admit when I was just starting ou
Page 17 and 18: One real estate investor I know has
Page 19 and 20: MAKE YOURSELF ACCOUNTABLE TO SOMEBO
Page 21 and 22: Over the years I’ve established a
Page 23 and 24: Chapter Three: It Takes a TeamWho w
Page 25 and 26: Whichever route you choose—to emp
Page 27 and 28: • Accountant. Your accountant wil
Page 29 and 30: Level One ResearchLevel One Researc
Page 31 and 32: Level Three ResearchWhen we returne
Page 33 and 34: that, the rest becomes easy. And th
Page 35 and 36: was before a boom in rental propert
Page 37 and 38: for the emergence of neighboring Li
Page 39 and 40: After reading this chapter, you sho
Page 41 and 42: find what fits my parameters. You m
Page 43 and 44: LOOK AROUNDBefore you seriously tar
Page 45 and 46: you? Well you won’t be surprised
Page 47 and 48: Tell me a littlebit about youand yo
Page 49 and 50: Chapter Seven: Is It Really a Diamo
Page 51 and 52: Step 1: Verify Property IncomeEven
Page 53 and 54: 6Numberof UnitsTotedToted Rent/Type
Page 55 and 56: Before we leave the topic of income
Page 57: Per UnitSeller Pro Prior Year OurFo
Page 61 and 62: Step 5: Calculate the Loan Payment
Page 63 and 64: Now it is time to convince the sell
Page 65 and 66: engineering reports, or any recent
Page 67 and 68: Chapter Nine: Due Diligence: The Ea
Page 69 and 70: Government Agency ReviewsPurpose :
Page 71 and 72: Regardless of whether I find hidden
Page 73 and 74: The Property Plan Adding ValueIt wo
Page 75 and 76: all our investigation, we discovere
Page 77 and 78: OTHER INCOME OPPORTUNITIESMost prop
Page 79 and 80: PROPERTY TAXESThere are two kinds o
Page 81 and 82: • High maintenance expenses requi
Page 83 and 84: Property Manager Job DescriptionReg
Page 85 and 86: MAINTENANCEIt’s the property mana
Page 87 and 88: that is very responsive. On emergen
Page 89 and 90: What this amusing story communicate
Page 91 and 92: windows, carport damage from moving
Page 93 and 94: high as 20 percent. Regardless of t
Page 95 and 96: What to Do with Your MoneyIf you do
Page 97 and 98: References and ResourcesFor additio
Page 99: Best-Selling Books in the Rich Dad
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