Investments

Wayne Burton
What Type of Investments?
This Segment
g will FOCUS on
Income-Producing Investments.
What Will Be Covered?
• Capitalization (Cap) Rates.
• C h on C
Cash Cash h (R
(Return
t on Y
Your MMoney).
)
• 2008 Financing and its Effects
Effects.
• 2008 At a Glance.
• What About 2009?
• Is the Herd turning?
Capitalization Rates
• Considered a Common Method to
determine Value.

• Predicated on a Cash Purchase prior to

Debt Service.
• Higher Cap Rate = Lower Property Value
• Cap Rate has Direct Effect on Property Value
Net Operating Income (NOI) of $100,000
9% Cap Rate = Property Value of $1,111,111
6.5% Cap Rate = Property Value of $1,538,461
• What
Wh t Determines
D t i Cap
C R Rates?
t ?
 Factors That Help Set
Property Cap Rates
• Market
• Desirability and Availability
• Property Type
• Location and Condition
Example
p Of 12% Plus Cap
p
 New NNN Lease
S ld att 8.82%
Sold 8 82% C
Cap R
Rate
t
 22 unit Apartment
Sold At 10.5%
10 5% Cap Rate
Self Storage has been in
Escrow at
9.0% Capp Rate
Example of 7% and less Cap
 CASH ON CASH
• A Method to Value Your Return on
g g
Investment when leveraging.

EXAMPLE: O
EXAMPLE On a 9% CCap R
Rate
t P
Purchase,
h with
ith a:
• Loan Rate @ 7.5%,, Cash on Cash is: 7.44%
• Loan Rate @ 6.5%, Cash on Cash is: 9.12%
• Cap Rates and NOI does not take into
account Financing.

• Interest Rates

• The Availability and Cost of Capital

Capital.
 2008 FINANCING & EFFECTS
• Commercial Direct Lenders were in the 7-8%
Range

• Banks wanted more Owner Equity - 30% and

higher

• Debt Service Ratio (DSR) was higher

• What is DSR?
• What were the Banks doing?
• Relationship-Banking
g
• Much Tighter
g Underwriting
g
• Cash
Cas aand
dOOwner
e Financing
a c g
became King
 2008 At a Glance
• Fewer Buyers
• Cost of Capital
• Loan Requirements
Tightened
• Cap Rate Trended up
• Buyers looking for Value - 8.5%
plus Cap Rates
• Loan Requirements Constricted
Sales
 What About 2009?
• Interest Rates Have Come Down -
6.10% to 7.10%
• Some Lending Institutions Are
Lending ONLY for Owner-Occupied
Owner Occupied
• Strong Pressure on Interest Rates to
Rise
• Cap Rates Will Continue to Rise
• Possible Increase in Capital
p Gains Tax
• Product Makes a Difference Example.

Thi is
This i a Market
M k t like
lik NONE WWe
Have Seen in Years!
 Forecast for 2009
Where Is the Herd Going?
g
A
Activity and IInquires are U
Up

I
Interest Rates
R Are
A D Down

Value
l isi the Best it
i has been in
i Years
Y

The Herd Has Stopped

SOME HAVE TURNED
• Owner-Occupied

• SBA

• USDA
• How about “Sale Lease Back”?

• Banks are Back to Basics.

• Out-of-Town Investors.
Investors
SOME ARE THINKING ABOUT IT.
• Buyers will be tentative.
• Gaps in the market
• What Gets The Deal Done?
• Is this a STRONG Buyer?
• Is the Project Financeable?
• I Owner-Carry
Is O C available?
il bl ?
• Is the Cap Rate based on Actual
Numbers?
• What about Replacement Cost?
 WHAT WILL THE DEAL
LOOK LIKE?
It will be more difficult to
get the Deal to Escrow
“The Altar” and even
harder to gget them to sayy
“I Do”

2009 will have its

Challenges but it is also
a Great
G t Time
Ti tto LEAD
the Herd,
NOT TO FOLLOW IT!
FROM OUR PROFESSIONALS TO YOU:

Based on Replacement Cost, Cap / Loan

Rates and Availabilityy
NOW IS POSSIBLY THE BEST TIME
IN YEARS TO BUY!
THANK YOU FOR
COMING