Sixth Day - 9/28/2006

We had our weekly sales meeting this morning where discussed new properties listed in the office and market trends. After leaving the meeting I was prepared to make my first cold calls, but after doing a little more role playing with Todd, I got cold feet and retreated to my computer to script some responses.

I did learn an interesting method of property valuation. When calculating a return/cap rate for a property many investors account only for utilities and maintenance expenses. In actuality, many additional expenses are associated with rental units including marketing, credit checks etc. the average figure according to research firms is between $2500 and $3500 per year per unit not including financing payments. The range of these figures is associated with the age of the building, style of construction, turnover of tenants and location implications of the building. These figures represent “hands free ownership” where you pay a third party for all activities.

These figures are significant because if a building is owned free and clear, i.e. you pay 100% cash for the property, rents must be approximately $300/month per unit to break even. Once mortgages and financing is included the break even amount increases. I also learned the term “buying a job” because if you buy a property with the intention of performing maintenance and management tasks yourself, you are essentially buying a job. What people fail to include in their property valuation figures is compensation for time they spend working on the property.