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Is that advertisement in the newspaper worth the expense and is it making mytelephone ring and getting me rentals?What is the advertising cost per rental?• What if I plan to adhere to the lease agreement?Will it generate more income through late fees, nonsufficient funds fees, parkingfees, water and sewer fees?If I do this what does it mean financially?Will it create more vacancies?• What if I charged location premiums, installed access gates, or put in a children’s playarea?Would the residents pay for it?What other things can I provide that the residents will pay for?Will the investment pay for itself within twenty-four months?• What if I replace an item instead of repair it?How much more rent will I get?• What if I bid out my landscaping and maintenance and repairs?Would I save any money?• What if I had a couple of insurance companies bid my insurance?Would I save any money?• What if I installed energy-efficient lighting?How much would it cost?How much money would I save in energy bills?Would the return on investment be worth the outlay of cash?• What if I hire my own maintenance person to handle routine maintenance?How many repairs can my maintenance person handle?How often am I paying for an outside service to do routine maintenance?What can I personally do to save money? Property management, landscaping,accounting, painting the units on move-out, cleaning them before the next personmoves in?Do I really know my property so that if an unusual expense shows up I recognizeand can flag or investigate it?As you can see, there are lots of ways to increase income and reduce expenses. It justtakes looking at the property and seeing the opportunities, understanding the residents’needs, and creatively coming up with solutions.Real-World ExampleMy partner and I recently purchased a 182-unit property located in Sun City, Arizona,an age-restricted fifty-five-and-older community. It was constructed in 1996 and was inexcellent condition. The ownership was based in New York City and this was their onlyproperty in Arizona. After running the numbers we calculated that the property was worthabout $9 million based on the prior two years’ actual operating numbers. This property wasnever listed for sale.We tied the property up at $9 million and started the due diligence process. We revisedour operating budget for future operations while we developed the property plan. Through
all our investigation, we discovered three main areas that were ripe for better managementunder new ownership:1. Transportation: The existing residents wanted some sort of community transportation.2. Apartment location: The seniors at this community didn’t like to climb stairs, so theupstairs apartments were usually the ones that were vacant.3. Cable and alarm: The property was locked into a bulk rate cable and alarmagreement.After doing our research in the surrounding area we found that we were one of the onlycommunities without a van to shuttle the residents around the community, to and fromappointments and special events. We found that our competition had transportation serviceand had a much higher occupancy because the van service attracted seniors who didn’t wantto drive. With that knowledge, we budgeted $54,000 for a twenty-one-person van into ouroperational projections. We have owned this property long enough to tell you that thisinvestment in the van has increased our rentals, occupancy, and cash flow and ultimately theproperty value.The second action we took in response to the three items in our plan related to pricing.Clearly our residents valued the first-floor apartments more than the second-floor units, sowe priced them accordingly, making the first-floor rents slightly higher than the secondfloorrents. Over time we were able to lease these first-floor apartments for $75 per monthhigher than the second-floor apartments. We also increased the rent on the units that hadexceptionally good locations or outstanding views. This equated to over a $6,000-per-monthincrease in our cash flow and the first-floor apartments are still 100 percent occupied!Finally, in response to point three in our plan, we renegotiated the bulk cable and alarmagreements. The existing agreements combined were about $21 per unit per month for all182 apartments, regardless of whether or not the apartment was occupied. This equated to a$3,822 per month savings. Better yet, the residents liked the new arrangement because forthe first time they could choose the cable plan they wanted, instead of being locked into aplan negotiated by the absentee ownership eight years prior. The same went for alarmservice.I know you’re thinking that, wow, it must be great to have all that extra income everymonth from simply executing this plan, and you’re right, it absolutely is. But the benefit ofgood operations goes one further. Remember from earlier in this book: The value of a multiunitrental property is a function of operations. Well, the result of all this increasedoperating income paid off just as we had planned: in a recent appraisal of $11.3 million,over $2 million more than we paid for the property just one year ago. This is the power ofplanning your success and using a good property management company that can, first,identify new ways to increase the net operating income and that, second, has the experienceto help you make it happen. This in turn increases the value of the property and increasesthe return to investors.I can’t emphasize enough the importance of putting your property plan on paper andthen working your plan. It is not a complicated document. There’s no need to put it in a bigthree-ring binder. As you can see, the property plan that yielded us thousands of dollars inoperating income and millions in appraised property value was a simple three-point plan.The property plan is simply your goal for the property. And just as I stated earlier in thisbook that you need to tell everyone you see and know about your own personal goal, you
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RICH £4 DAD• OVIM'.KSFOREWORDBYR
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This publication is designed to pro
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ContentsForeword Learn from an Expe
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Chapter One: The Myths and the Magi
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Myth #2: You Need to Start Small-Bi
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Take any ten-acre piece of land. Le
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have on your team. And you’ll fin
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I admit when I was just starting ou
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One real estate investor I know has
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MAKE YOURSELF ACCOUNTABLE TO SOMEBO
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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 and 58: Per UnitSeller Pro Prior Year OurFo
Page 59 and 60: IncomeSeller Prior Year OurPro Form
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: The Property Plan Adding ValueIt wo
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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