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Three Misconceptions about Japan’s Properties

April 10, 2019 by Realty411 Team Leave a Comment

Japan’s attractive property market draws real estate investors worldwide for its high yield, affordability, rental income cash flow and safe haven economic environment. While the real estate investment arena is undoubtedly attractive, and the second largest real estate investment market in the world, Japan is also one of the countries most affected by natural disasters. Therefore, before jumping in to buy up properties, foreign investors, new to the market, often test the waters by asking about the quality of Japan’s structures and their ability to weather the storm. Investors ask, “What is the risk associated with the age of Japan’s real estate?” To answer this question, we explore the common misconceptions of Japanese properties.

Misconception #1 – Properties are Made of Wooden Structures

Some investors have concerns about the materials used to build real estate in Japan and whether or not they can withstand the force of earthquakes and tsunamis. This misconception stems from traditional wooden houses which used to line the streets of Japan in the former imperial capital. Most investors focus on buildings for the cash-flow play, rather than houses. Therefore, the concern is an out-dated concept and no longer a consideration. Furthermore, wooden houses are being steadily replaced by earthquake-resistant, reinforced concrete apartment blocks.

Misconception #2 – Properties Built after 1981 Pose Less Risk

In 1981, the Building Standards Law was revised to protect residential and commercial structures against earthquakes. In 2006, building certificates and inspections became even more regulated subjecting builders to inspections during the construction process for buildings above three stories. Because of the revisions to the Building Standards Law in 1981, some investors consider 1981 the turning point for sounder structure. Herein lies another misconception.

A building’s condition is affected by more than just its age. A properly managed accumulated funds pool can also affect its condition. With adequate funds, buildings built prior to 1981 can be retrofitted to bring them up to code by regularly renovating, repairing and re-strengthening exterior walls and taking care of unforeseen renovations. Alternatively, a newer building could be poorly managed with insufficient funds for renovations and maintenance. As you can see, investing in an older building under these circumstances could be the wiser choice to minimize risk.

As facilitators to foreign investors, we try not to source anything older than 1973. But, those that we did source were well-maintained buildings housing 50 to 200 units, showing no signs of deterioration, beyond normally acceptable and repairable wear and tear. Generally, since the cost for renovations and repairs are taken out of the building repair fund, if funds are insufficient, then apartment owners bear the extra costs. To ensure the risk to investors is minimal, when conducting due diligence on a potential purchase, we look into the status of the accumulated funds pool, renovation/repairs/maintenance history and the building management company’s handling of the collected renovation/repair funds and provide a report to the investor for an educated investment.

Misconception #3 – Properties have Just a 20 Year Life-Span

Life-span of a house is sometimes referred to as approximately 20 years, while that of a building approximately forty years. From a value perspective, this is a misconception. This life-span refers to tax depreciation not the quality of the property.

There are other benefits to an apartment investment over a house. Houses require more maintenance and can present unexpected costs, whereas, in a building, structural expenses are known in advance and covered by pre-set building fees. And, the building management company’s monthly fees normally cover all or most maintenance expenses, so there are far less surprises.

Overall, risk is greater with speculative play for capital gain such as units in Tokyo or Osaka. Investing in Japan for its monthly cash flow environment in cities such as Sapporo, Fukuoka, Nagoya and other cities with stable or growing population can result in stable returns. For highest yielding properties, investors should focus their criteria on condo units under 200 sq. ft., one to two room units, for inexpensive interior maintenance. Alternatively, some of our clients aim for smaller and older buildings on large plots of land in key locations. The strategy in this case is to sell to a developer when the building becomes too expensive to maintain, in exchange for either compensation at a profit, or a new unit in a new residential project built on that land. The downside is that these units only have a small fraction of land attached to them, so appreciation potential is lower.

Priti Donnelly, Sales and Marketing Manager, Nippon Tradings International, [email protected]

Priti Donnelly

Priti Donnelly is the sales and marketing manager at Nippon Tradings International, a proxy and buyers’ agency representing foreign investors with purchasing, selling and managing real estate in Japan. She understands the importance of transparency in today’s international market. Through her insight, she focuses on breaking barriers and helping investors feel confident about their overseas property investments.

Phone: +1 226 336 4097 / +81 3 4520 9262
Email: [email protected]
Website: http://www.nippontradings.com

Filed Under: international real estate investing, interviews, investing tips Tagged With: apartments, international real estate, Japan properties, overseas property investments, real estate market

Single-Family Home Rentals are Dead? Discover the #1 Investment Opportunity FOR THE NEXT 20 YEARS

February 22, 2019 by Realty411 Team Leave a Comment

By Gene Guarino, CFP

Are single-family home (SFH) rentals dead? Well, that depends on who you are renting them to of course. How does $200-$300 a month in positive cash flow sound? When I was 20 years old, that was exciting. Today, that doesn’t get me very excited at all.

Lets face it, one turn over with even one month of vacancy eats up an entire year’s worth of profits in most cases. Let me show you how to get TWICE the fair market rent with a long-term, low-impact tenant or if you’d rather, how you can make $10,000 or more NET per month with Residential Assisted Living.

The Baby Boomers are here and they are driving the demographics in housing for the next 20 years. Nearly eighty million of us were born between 1946-1964. We are the Baby Boomers, and we are turning 65 at the rate of over 10,000 a day. Life expectancy is increasing and many of us will live well into our 80s and 90s. There are 4,000 a day turning 85 and 70% of those people will need help for an average of 3.5 years. The 85+ year old group is the fastest-growing demographic of all in the U.S.

It is projected to triple over the next 20 years. Senior housing is a great place to be now and will only be getting better and better for the next 20-30 years.

The reality is that most seniors will not need a nursing home but they can’t live safely on their own either. They do need assistance and that is what is provided with Residential Assisted Living or RAL.

Many of you have already faced this situation with your own parents. If not, well, your time is coming. This mega-trend will last for several decades to come and you can profit from this unstoppable wave and help a lot of people by “Doing Good and Doing Well”.

Senior Assisted Living is the Best Real Estate Investment Opportunity for the Next 20 Years.

This mega trend is a “Silver Tsunami”and it has created a massive opportunity for smart investors who are poised to profit. Let me explain why “typical” SFH rentals are dead. If you rent a home to a typical tenant, you will get a typical profit of a few hundred dollars a month, maybe. With a typical turnover and a month of vacancy in between you may end up with little or no profit at all at the end of the year. Now, if you were to get TWICE the fair market rent, your profit increases exponentially. Instead of a few hundred dollars in profit you would be netting a few THOUSAND dollars in profit each month.

With your typical tenant you have a one-year lease. They may stay for a second or even a third year but they are looking to buy their own home and move out in most cases. That’s not bad but, on the other hand, what if they move out after a few months in the middle of the night and leave you with thousands of dollars of repairs from the damage they left behind? Been there, done that.

Let me ask a silly question: Would you rather have a long-term, low-impact tenant? A tenant that wants a five-year lease and wants to have two or three, five-year renewals on top of that? That is what an operator of a RAL wants. That is why senior housing is the best real estate investment opportunity for the next twenty years. Long-term, low-impact tenants who are willing to pay twice the fair market rent.

Why would someone pay TWICE the fair market rent and how do I find them!

The answer is your tenant, the operator of the RAL, will still be able to make a lot of money even after paying you twice the FMR. Let me fully explain that by crunching the numbers.

The national average for a private room in a residential assisted living care home is $3,500 per person, per month. Keep in mind that there are people paying two and three times that and there are people paying half that amount. You get what you pay for of course. Remember that 70% or more of the wealth in the U.S. is controlled by seniors. You may not be able to afford or provide for your own long-term care needs, but they can. Keep reading and I will share with you how you can live for free when you need your own long term care.

How much can I really make?

With a home that is licensed for 10 residents, at an average rate of $3,500 per resident, that is $35,000 per month in potential gross income. The expenses, including debt service or rent and even vacancy is about $25,000. That leaves a net profit of $10,000 per month for an average home. That is for an average home and an average clientele. I have homes that gross $40,000 and $50,000 per month and more. The reality is the expenses are virtually the same for an average home as they are for an above average home. The difference is the cost of the real estate.

As a landlord you could be very happy to have a couple thousand dollars per month in positive cash flow. As the operator of the RAL you can earn $10,000 to $20,000 net per month. That is a true win-win situation.

If you are considering renting your home to an RAL operator…

You will be well served to learn all you can about this opportunity. You will want to know what your tenant, the RAL operator, is supposed to be doing to be successful. That way you can better choose the right tenant and be set up for success from the start. At RAL Academy, I show people how they can profit whether they are a landlord or a tenant.

When we age we become more dependent upon the help of others in order to do basic activities of daily living. These self-care activities include ADLs such as cleaning, clothing, bathing, medication management and food prep.

You can profit either way.

This is not just another real estate “fad” that comes and goes.

This is a massive shift in housing demographics. You will either be riding on top of this unstoppable wave or you will hesitate, procrastinate and potentially miss it completely. That choice is yours but you will be a participant one way or the other. I have comparatively little competition. How many people do you know that are in the business of RAL?

With RAL it doesn’t matter whether the real estate market is at the peak or coming down from it, cashflow is cashflow. After 30 years as a real estate investor, doing everything from fix and flips, short sales, REOs, lease options and more, my goal is now just one thing: Significant long-term residual cash flow. Residential Assisted living gives you the opportunity to do one deal and you are done. For life.

What is the key to success in Residential Assisted Living?

The key to success in RAL is in the details. You need to know which type of home works best, what location is best, how to find the home that no one else wants that will work perfectly for a RAL home and how to do it quickly without all the guess work. You need to know how to find the right team to make your life easy and to fill the home with high-paying residents. I’m sure there are more questions coming to mind for you like: What about the liability? What about a two- or three-story home? What about… There is a lot to know, but the good news is you are not on your own.

If you want help in learning how to do this, it is available. Learn more at www.RALAcademy.com The phrase, “paying for speed” is not just an expression, it’s a reality. That’s why the Residential Assisted Living Academy was founded. To show others what to do and what not to do in an easy-to-follow, step-by-step process. I’ve done it, and I show you how you can do it too.

The “Silver Tsunami” is here and the opportunity to “Do Good and Do Well” is clear.

If you would like to learn more, at my training programs we go into depth so you will be totally prepared to succeed in this endeavor. Imagine having one RAL home providing your family a $10,000 per month POSITIVE CASH FLOW… Now, imagine scaling a bit and having two or three… now you’regetting the idea. It’s a new world out there. The days of making a few hundred dollars a month in cashflow per house are history. If you’d like to learn how to do one deal and make $10,000 per month or more, let me show you how you can make that happen. Gene Guarino, CFP is the founder of the Residential Assisted Living Academy. Learn more by visiting www.RALAcademy.com. Gene can be reached at: [email protected]

Filed Under: business tips, experts, landlording, lease option Tagged With: apartments, lease, rent, single family home rentals

SCOTT MEDNICK President of OCREForum.com and Marblehead Real Estate Partners

January 11, 2019 by Realty411 Team Leave a Comment

Scott Mednick, President of OCREForum.com and Marblehead Real Estate Partners is a seasoned real estate professional with a keen market insight and a thorough understanding of current investment opportunities. Scott has 30 years’ experience transacting residential and commercial properties. Scott has been involved in over 200 million dollars of value-add real estate and has collaborated with his investors purchasing distressed assets and repositioning for safe and consistent returns.

Scott’s experience includes rehabbing bank owned single family homes (REO’s). In the 1990’s, Scott had remodeled over 2500 homes for such clients as: World Savings, Fannie Mae, Freddie Mac, North East Savings, EMC, Berkeley Federal, Southern California Savings, Trans-America, and Home Savings.

Sought after for his talents in sales negotiation and strategic property marketing, Scott’s reputation for professionalism and deal-closing talents has earned him an impressive roster of investors. Scott is also a highly sought after speaker on how to invest here in Southern California and out of state.

At OCREForum.com, Scott runs a REIA group that has monthly meetings and all are welcome. We teach how to buy and sell single family homes, apartments and self-storage. The main theme of our group is buying value add real estate that will make safe returns for our investor partners.

Scott also mentors new investors how to buy here in Southern California. He also forms joint ventures with many investors on bigger projects. Scott looks forward to meeting new investors in the Orange County area, be sure to attend his next monthly OC Real Estate Forum meeting.

To learn more about Scott Mednick, visit http://MarbleheadREP.com ; Scott is a Real Estate Broker BRE#00913829 and a General Contractor #615087

Filed Under: experts, networking Tagged With: apartments, real estate broker, self-storage, single family homes

Income-Producing Real Estate’s Positive Trends

January 13, 2016 by Realty411 Team Leave a Comment

By Rick Tobin

featured

Commercial real estate properties come in many different forms or property types ranging from multi-family apartments to retail shopping center malls, industrial warehouse space, 100-story office buildings, and mixed-use properties with a combination of one or more zoning or usage types. Commercial properties typically derive their value from a combination of income less expenses, cap rates, preferred Debt Service Coverage Rations (DSCR – 1.0 is break-even when the income covers the annual mortgage debt service) used by lenders, comparable sales comps in the region, and location.

We will take a look below in regard to various types of leases used on many commercial properties, value analysis strategies used by lenders, real estate agents, and investors, and more recent sales or leasing trends for these properties. In order to best define a commercial property’s perceived value, we must better understand how lenders and experienced investors look at the deals. First, we will look at some of the most common lease agreements below which are signed prior to the property owners generating any income on the subject property.

Gross and Net Leases

leasesThe most basic types of Commercial Real Estate lease agreements may be considered as “Net”, “Gross”, or a hybrid combination of both. These are especially true for Office buildings across the nation.

Full Service Lease or Gross Lease: With a Gross or Full Service Lease, the monthly rent paid is typically all-inclusive. The Landlord usually pays most or all of the expenses which can include property taxes, insurance, maintenance, utilities, and other common area expenses. This type of Commercial lease can be the easiest lease agreement to enter into for the prospective Tenant as well as can be the easiest type of lease for the licensed Agent to work on as well. The Landlord effectively assumes most or all of the responsibility for the property, and the Tenant is free to focus on growing and expanding their business. Rental rate hikes can be built in for each subsequent year of the signed lease agreement, and is tied typically to some type of projected national inflation index percentage rate.

Net Lease: There are various types of Net Leases such as “Single Net”, “Double Net”, “Triple Net”, and other combinations of these Net Lease options. The Landlord may charge a much lower base rent for the building’s space, but the Tenant then pays a higher portion of the monthly expenses such as pro-rated property taxes, insurance, common area maintenance items, sewer, water, trash collection, landscaping, parking lot expenses, and other shared services or fees.

taxes-646509_640Single Net: With type of Net Lease agreement, the Tenant may pay a base rent plus a pro-rata portion of the property owner’s portion of the property tax bill (the single portion paid out of this Net Lease), utility fees, and janitorial services for the same proportional space in which the Tenant occupies. If the Tenant only occupies 20% of the entire building’s space, then his or her portion of the taxes, utilities, and any other common area expenses represent 20% of the owner’s overall bills. Generally, a Single Net lease agreement is assigned to one single tenant.

Double Net: The Tenant is primarily responsible for the base rent in addition to a pro-rata percentage or share of property insurance and property taxes (these two paid items represent the “Double” portion heading for this Net Lease). If the Tenant occupies 50% of a Medical Office Building, then that same Tenant will pay 50% of the building owner’s insurance and taxes. The Landlord, in turn, will usually cover the expenses for common area maintenance and basic structural repairs. The Tenant will also pay for his or her own utility expenses and janitorial services.

calculator-178127_640Triple Net (NNN): This is perhaps the most popular and common type of Net Lease for various types of Commercial Real Estate. It is also referred to as the “Net, Net, Net Lease” or “NNN Lease.” The three paid pro-rated items out by the Tenant(s) which represent the word “Triple” in this Net Lease description are property taxes, insurance, and CAMS (Common Area Maintenance Fees). These three main expenses paid directly by the tenant are in addition to the typically flat monthly rental fee which probably has escalation clauses tied to higher projected rates of inflation.

Common area utilities and operating expenses may be included in the requested monthly expenses to be paid by the Tenants also. These common area expenses can include staffing costs for lobby attendants, doormen, or other building personnel. Tenants also have to pay for their own interior utility and insurance fees as well as their own taxes. So, several Tenants are paying multiple payments for separate utility, maintenance, tax, and insurance costs.

Triple Net Leases are favored by Landlords who may own high quality and prime Class A and Class B type Office Buildings and other types of Commercial Real Estate. Triple Net Lease payments can vary monthly and yearly due to fluctuations with the high number of third party and common area costs which may be outside of the control of the Tenant.

Commercial Leases during Good and Bad Economies

Landlords who employ property management firms for prime commercial properties prefer this Triple Net approach with their Tenants during positive economic time periods when the demand for space is much stronger. However, Landlords may also offer as many financial and rent incentives and upgrades to prospective Tenants during the more sluggish economic times which can have relatively high rates of vacancies. When the economic time periods for Commercial Real Estate Tenants and Landlords get really bad, then foreclosure and bankruptcy rates can skyrocket for either party in these transactions. For some Tenants who are financially struggling, a bankruptcy filing (personal or business) may be one of the better options in order to legally break their lease and avoid future liabilities with the property’s owner.

Picture10For Tenants who struggle to meet their monthly expense obligations during both good and bad economic time periods, these rapidly increasing monthly and annual expenses can really hurt the Tenant financially. In many Landlord / Tenant situations, the Tenant must break the lease and vacate the building’s premises due to the rapidly increasing and ever changing monthly expenses which the Tenant had not factored within their original budget.

If the Landlord struggles to make their monthly mortgage payments on their buildings which can range from several thousand to tens or even hundreds of thousands of dollars per month, then that same Landlord may be forced to file for Bankruptcy protection in order to try to hold off any impending foreclosures by his or her existing mortgage lender.

Retail Shopping Centers

Picture11Sadly, the retail shopping center sector has been in the news many times in recent years in regard to numerous small, medium, and large shopping centers going out of business due to much less demand by their retail customers. Many people prefer to purchase their consumer goods online instead of in person at large outdated shopping malls. As a result, a large number of retail malls have filed for bankruptcy or shutdown altogether. Yet, there are still a reported 114,000 shopping centers nationwide in existence, per the International Council of Shopping Centers (ICSC).

On the other side of the retail shopping center spectrum, there are also many high-end malls and discounted outlet locations doing quite well. Some of the wealthiest REITs (Real Estate Investment Trusts) and Equity Funds are buyers or long-time owners of many of the top shopping center locations in the United States. Let’s take a look below at the Top 10 sales generating malls in the USA in 2014 as based upon sales per square foot.

The Top 10 Sales Generating Malls in the USA in 2014

1. Bal Harbour Shops (Bal Harbour, Florida) – $3,010 sales per square foot
2. The Grove (Los Angeles, California) – $2,100 / sq. ft.
3. Pioneer Place (Portland, Oregon) – $1,855 / sq. ft.
4. Woodbury Common Premium Outlets (Central Valley, N.Y.) – $1,550 / sq. ft.
5. Forum Shops at Caesars (Las Vegas, Nevada) – $1,515 / sq. ft.
6. Aventura Mall (Aventura, Florida) – $1,550 / sq. ft.
7. The Mall at Millenia (Orlando, Florida) – $1,400 / sq. ft.
8. Orlando Premium Outlets (Orlando, Florida) – $1,385 / sq. ft.
9. Ala Moana Center (Honolulu, Hawaii) – $1,360 / sq. ft.
10. The Malls at Short Hills (Short Hills, New Jersey) – $1,245 / sq. ft.

Source: Green Street Advisors, a real estate analysis firm

Multi-Family Apartments

The most successful part of the commercial real estate sector continues to be multi-family apartment buildings (5+ units). In some of the most prime, coastal metropolitan regions, apartment buildings are selling near or above all-time record high prices. Individuals, REITs, Hedge Funds, and Crowdfunding Platforms for Real Estate are some of the top buyers today for multi-family deals. As a result, the bidding wars are pushing prices higher than ever before.

Vacancy rates have also fallen to near 4% nationally for metropolitan regions in 2015 due to strong demand from tenants. In some of the most populous metropolitan regions, the apartment vacancy rates are closer to the 0% to 3% range. Low vacancies plus increased demand are pushing rents skyward as noted by the Top 10 priciest year-over-year rent increases as of the 1st quarter of 2015:

1. San Francisco, CA (median rents near $3,055): 14.9%
2. San Jose, CA: 13.4%
3. Denver, CO: 10.2%
4. Kansas City, MO: 8.5%
5. Portland, OR: 7.2%
6. Austin, TX: 7%
7. Charlotte, NC: 6.1%
8. Houston, TX: 5.9%
9. Phoenix, AZ: 5.3%
10. Detroit, MI: 5%

Source: Zillow

Picture12

Apartments derive much of their value by way of dividing their Net Operating Income (NOI) by a targeted cap (or “capitalization”) rate. Property values and cap rates are inverse to one another like a See Saw. Declining cap rates lead to increasing building values, and increasing cap rates usually lead to falling values. In recent years, we’ve seen cap rates reach near or all-time record lows right along with mortgage rates and vacancy rates.

Between 2002 and 2008, the average national cap rates used for commercial properties nationally fell from 9.3% to 6.75% (250 basis points). This was the largest recorded decline or compression of rates in U.S. history at the time. Yet, cap rates continued their downward descent between 2008 and 2014 as the average cap rates fell from 6.75% down to 4.4% in many of the most populous, coastal regions such as New York City, Boston, Los Angeles, San Francisco, and Seattle.

Let’s take a quick look how building values are calculated by using the exact same apartment building with absolutely no change in Net Operating Income (NOI) as well as significant changes with a lower cap rate:

* Building Value or Market Value = Net Operating Income / Cap Rate
* Building 1: $160,000 NOI divided by an 8% Cap Rate ($160,000 / .08%) = $2,000,000 value
* Building 2: $160,000 NOI divided by a 4.5% Cap Rate ($160,000 / .045%) = $3,555,556 value

The combination of near record or all-time low mortgage rates, vacancy rates, and cap rates plus record high rents should continue to create the exceptional combination of high rental income, long-term tenants, and rapidly escalating building values for many years into the future. Assets that create significant consistent monthly income while you sleep are hard to beat in any boom or bust financial era.


Author: Rick Tobin Rick Tobin Professional Pic sharperLook for Rick’s ebook on Amazon Kindle: The Credit Crisis Deals: Finding America’s Best Real Estate Bargains. Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com.

Filed Under: Uncategorized Tagged With: apartments, commercial leases, gross lease, net leases

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