Bob Sheddy - Blog

Cap Rate vs Cash on Cash Return

bob.sheddy@century21.ca — Thu, 02 Feb 2012 00:00:00 GMT

I had a seller (who was selling an apartment building in a smaller Alberta town) ask me to help him with a financial breakdown on his condo unit. I came up with the following breakdown.

Revenue $1250 x 12. = $15,000
Less: Vacancy 4.55%. =$ 682.50
:::::::::::::::
Gross Operating Income = $14,317

ANNUAL EXPENSES
Annual Property Taxes: $1,489
Annual Advertising. $40
Annual Sewer/Water: $300
Property Management. $0
Repairs and Maintenance $500
Condo Fees $125 x 12 $1500
::::::::::::::
Total Expenses. $3829
-------------------------------------------------
Net Operating Income. $10,488

$10,488
------------- = 6.56%
$159,900

He replied back and asked if I would consider a different approach. He said that if we add in a down payment of 30.000 = Mortgage of 130,000.00 at 3.75 =768.80 ( 20 year amortization) then it should look like this....

Apartment Rental $1250 x 12. = $15,000
Less: Vacancy 4.55%. =$ 682.50
:::::::::::::::
Gross Operating Income = $14,317
ANNUAL EXPENSES
Annual Real Estate Taxes: $1,489
Annual Advertising. $40
Annual Sewer/Water: $300
Property Mgmt/ Realtor $0
Repairs and Maintenance $500
Condo Fees $125 x 12 $1500
Mortgage interest year 1 $4820
Total Expenses. $8649

Net Operating Income. $5668

$5,668
------------- = 18.89%
$30,000

In his scenerio, we aren't calculating Cap Rate. A Capitalization Rate is the ratio between the net operating income produced by an asset and its capital cost (original purchase price). Every investor wants to know the cap
rate.

What he has calculated is a Cash on Cash Return, which can be swayed any way you like. In my opinion, agents can't and shouldn't show cash on cash returns in advertising, because we don't know the buyer's financing or tax
situations, so the calculation is often useless, and can be misleading.

A cap rate can only fluctuate if a) the price drops, b) the expenses drop or c) the income increases.

I'd love to hear your thoughts.

Bob Sheddy
Broker/Owner
Century 21 PowerRealty.ca
BobSheddy.ca

Things To Do For Under $25

bob.sheddy@century21.ca — Thu, 12 Jan 2012 00:00:00 GMT

A whole schwack of things to do for under $25 - there really is a lot more to the valley than meets the eye.

For those who love to eat:

1. Go out for dinner. There are plenty of diners, drive-thrus and dives in our little town. Each place is known for something different and delicious.

2. Pancake breakfasts happen every Sunday. Nacmine, East Coulee, Midland… It’s always at a different location, so make sure to check out the latest edition of The Drumheller Mail www.drumhellermail.com for details.

3. Visit a coffee shop or restaurant and order a coffee to go. Then take a walk down Main Street and check out the local storefronts for deals.

For those with a creative edge who need to move:

4. Take a hike. Walk around town, or take a trail blazing walk by the river with the dog and the kids!

5. Dance to your own beat with Zumba and yoga classes, open to the public at Carol Todor’s dance studio downtown.

6. Take your camera with you and take pictures of unique sights.

7. Develop your pictures and make a scrapbook to show your friends what it is that makes Drumheller so special!

8. Round and round and round you go… Walk around the Arena anytime the Drumheller Memorial Arena is open, except during Dragon’s hockey games.

9. Tai Chi is free and it’s a fun way to relax. Mondays and Thursdays from 7pm at the St. Anthony’s School Gymnasium.

10. Swim like a fish at the Drumheller Aquaplex. See schedule for details.

11. Go bowling!

For those who would like to bring a little culture into their lives:

12. While it may sound cliché, the Royal Tyrrell Museum of Paleontology always makes for an interesting outing. The ever “evolving” displays make for something different every time you visit.

13. Volunteer your time. Groups such as the Drumheller & District Humane Society, the Literacy Project and other organizations in the valley could always use a helping hand.

14. As well, you can always check out the Further Education guide or look for it online at www.dinosaurvalley.com and contact the Community Services department at Drumheller Town Hall for more information.

10 Travel Ideas for Realtors taking a Holiday in 2012

bob.sheddy@century21.ca — Thu, 29 Dec 2011 00:00:00 GMT

In our business, it is very tough to take a break. We don't need to sit in an office all day, but providing great customer service to our clients means we must be available for them when they need us. I find Realtors are good at taking 2 day trips, but seldom take a week long trip without a ton of stress. I have some advice for Realtors. The
main priority leading up to the trip is to make sure you are extremely organized, and review all of your listings to make sure that you're caught up on all of your files leading up to the day you take off. Below are the additional tips that I offer the Realtors that work for me in my office:

1. Access your email via webmail. If you don't have one already, I recommend that you set up a gmail account. Gmail has a very easy to use interface and it is a dream to use on a limited or spotty internet connection compared to others. It is important to use a company branded email, but it is even more important to be able to quickly access all of your files from multiple devices. Gmail has mastered email.

2. Call the hotel ahead of time to make sure you have a great internet connection. You can go so far as to ask them to go to www.speedtest.net and run a speed test. Test your office connection to compare, but you'll likely be used to 3.0MB download speed or larger, so you'll want at least that on your holiday.

3. Book your hotel room as close to the Wifi Lobby as possible. You'll need to check your email frequently, and the easier it is for you to grab your computer, download your messages, and put your computer back in the room, the better. Take a Belkin Skype Phone or download Skype to your iPhone. When you're at your hotel, you can just stand in the lobby, and use your iPhone to make calls as you normally would via Skype. You can test these services on your home or office wifi.

4. If you don't have one, consider buying an iPhone or Blackberry, or Android, smartphone with at least a 5 or 8 Megapixel camera in it. Not only can you use the camera to take vacation photos, but more importantly, you can take photos of documents, easily convert to pdf and email them, just as if you were using a scanner. I use DocScanner for the iPhone, and it works great. Allows me to send the real estate listing, purchase contract, buyer's waivers, and other files in PDF format.

5. Pack lightly. Coordinate all of your clothes so that every shirt matches with every pair of pants. A friend of mine who sells Residential Real Estate in Calgary, gave me this tip, and he says he brings black underwear, black undershirts, black socks, black belt, and black shoes. He matches everything from there, and says it really lightens his suitcase.

6. Hire a temporary real estate assistant for the time that you are gone. Find someone in the office who agrees to be on call for you 24 / 7. Chances are you'll need their help outside normal office hours and you may need them to make phone calls, send faxes, deliver documents, print out contracts, waivers, amendments, etc and meet clients to sign. You'll be surprised at how little you actually need this person, but how handy they are when they can help when you need them. I usually give the person $100 before I leave, and settle up with them when I'm back if I've used over $100 of their time. You can offer to pay $20 to $60 per hour. Believe me, just knowing that they are there to help is worth the $100. You'll be surprised how little you need them.

7. Make sure you have all of your clients faxing you to your electronic fax (myfax.ca or efax.ca). You have to change your business card, your website, your listing and purchase contracts, etc so that they reflect your new electronic fax number, but it will be well worth it. Another important step is to put your email address on your voicemail. My voice mail says "Hi, you have reached Bob Sheddy. I'm either with a client, or away from the phone. Please leave a
message or email bob@telus.net and I'll get back to you as soon as I am able. I've found about 25% of people prefer to email me, than leave me a long message. Leaving my address on my voicemail gives people permission to email me, which makes it very smooth to communicate with them when I'm away.

8. Sign up for visual voicemail or google voice "voicemail to text email" conversion. When you are away, you'll be able to easily view and forward any voicemails to your assistant for them to deal with. You can easily forward the message and say "Call him back and say Yes" or "Ask this person if we can meet on Monday". Your assistant back
home can play the voice message on their mobile device or computer, see the phone number the caller called from, understand who's calling and hear the tone of their voice.

9. Either notify your current Mobile Telco provider you are leaving and set up for a travel plan or… Buy an unlocked phone, or unlock your existing phone Research your destination's Prepaid Cell Phones, International Sim Cards, International Calling Plans, Prepaid wireless aircards, etc. In Canada, Bell, Rogers and Telus all now allow you to
unlock blackberry and android phones for $75. Canada has expensive mobile phone minutes, so in comparison, I'm always thrilled at how affordable it is to call back to Canada, and have access to my email and internet on my handheld. Every airport I've been in in the last 5 years has had kiosks that sell Sim cards. You need to research what frequencies your cell phone accepts, and what frequency the phone companies use.

10. Last minute details before you go: Are all of your keys accessible (especially the ones not in a lockbox)? Is someone checking your SMS text messages or are you able to get them at your destination? Do you have a multi-national power converter with a small power bar to power all of your devices at once?

Enjoy your trip knowing that you are well prepared to continue serving your clients while you are away.

O.R.S.

10 Questions to Ask a Prospective Property Manager

bob.sheddy@century21.ca — Thu, 15 Dec 2011 00:00:00 GMT

Property Owners love to be able to drive up and view their property. Even if you live where your properties are, it can be difficult to keep track of their condition, the tenants, and ensure that you follow all of the Residential Tenancies Act rules and best practices.

Tenants often know enough of the rules to take advantage of owners if they are not on top of things. Instead of worrying constantly about what is going on at your rental property, you can hire a property manager to collect rent, handle tenant issues, organize maintenance, and plan for preventative maintenance.

Over the past 5 years, my business partner and I have built up a property management business that manages our own properties as well as third party properties. Based on the lessons we've learned, here are the questions we would ask if we were hiring a property manager.

1. Are they experienced? Is your potential manager experienced in managing rental properties?

2. Are they professional? What is their level of experience and breadth of skills of the Manager and their team? Can they communicate via email and take mobile photographs of the issues they are dealing with? We've found a great way to keep the owner in the loop is to cc them on our correspondence, and allow them to assist and advise if they choose.

3. How many other properties does the company manage compared with the staff that is available? How much time will they be able to devote to your property? Your property manager must have the time to help your tenants with their needs and monitor any situations that may arise.

4. Are they available part-time or full-time? If you need a manager that is available around the clock, a part-time applicant may not be suited for the job. You will need to decide how much time you think your property will need before finding the right person for the job. In our opinion, it is best to have a team of full and part time
managers and maintenance crew that are cross trained.

5. Are they certified? In Alberta, Property Managers must be licensed with the Real Estate Council of Alberta. They take specialized property management courses from the Alberta Real Estate Association.

6. Are they easy to get along with? Personality counts, especially with a property manager. If they rub you the wrong way, your tenants may have the same response. A bad manager can lead to high tenant turnover rates and may cost you money. If they are too soft, the tenant will get away with damage, and late rent.

7. Do they get everything in writing and store files in an electronic database? Requiring applicants to fill out a written application is critical. This allows the property manager to follow up on their references and have a record of their personal contact information. All tenant issues and resolutions should be documented. Email works
well for this purpose.

8. Who is the team that will all be involved in the management of your building? Get to know the maintenance personnel, the bookkeeping staff, the front line administrators, etc. Make sure they are familiar with your building and know how you would like to handle certain issues.

9. Do they know how to collect rent and enforce the rental agreement? If your tenants will turn over their rent to the manager instead of you, you will need to make sure that your manager knows how to collect the rent. If you do not feel comfortable with this arrangement, you can request that your tenants send their payments directly to you.

10. Can they provide references? Make sure that your applicant can be trusted with rent money, property care, and other concerns before handing over the responsibility to them.

If you want to discuss this topic more in person, feel free to give Commercial Real Estate Agent Bob Sheddy a call at 403.324.2222 or send me a quick message to bob@telus.net