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Real Estate Rockstars: 5 Millennial Realtors Who Are Crushing It In 2018

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Housing sales dipped dramatically after the mortgage nightmare in 2008. But since 2011, the numbers have shot back up.

In 2017, 614,000 houses were sold in the U.S. In total, US real estate transaction volume hit $467B in 2017. But who are some of the hottest young agents brokering these deals? Here are five of the top realtors under 35.

1. Ryan Serhant

The NYC-based power broker and author of the bestseller “Sell It Like Serhant” closed deals that topped $838M last year. Ryan has built one of New York’s top real estate firms, raking in millions every year.

He initially entered the housing market in 2008, when the real estate space was seeing one of its biggest collapse. In his first year, he made just about $9,000 and decided to stick it out through the hurdles that came his way.

“Never in my wildest dreams did I think that 10 years later I would do [$100 million] in deals over spotty Wi-Fi while on a safari in South Africa like I did last week,” he told CNBC in April.

 

 

2. Blair Brandt

Blair Brandt is a 2011 Forbes 30 Under 30 entrant who rose to notoriety at 23.

Brandt’s company, The Next Step Realty, focuses largely on recent college grads.

“It’s been a total mess for young people who are graduating and moving to big cities to meet the right broker, to take care of it quickly, and to do it affordably,” Brandt told Forbes.

He matches recent college graduates with local realtors to help them find their first post-college apartment—and usually at a discount.

They offer discounted student brokerage fees, and hyper-localizes their experience by connecting them to a local broker to ease the process.

 

 

3. Jon Tetrault

Jon Tetrault and his partner at Slocum Realty snagged deals worth $24M last year and over $13M till date this year.

For the rising realtor, his success largely hinged on networking and sheer hard work.

“Always talk to people, and if that doesn’t work, talk to more people. Real estate is about building connections because that is what drives referrals. Research your region and look for the local chamber of commerce or any volunteer boards that you can join—these are all great opportunities to expand your network,” he says.

“Put yourself in front of people. Listen to other agents and what they say, jump in their car when they go to appointments. When you’re first starting out, you can learn so much from the stories and experiences of veteran realtors,” he tells us.

 

 

4. Oren Alexander & Tal Alexander

The brothers, who are with Douglas Elliman, have won over some of the biggest clients across the globe. Much to their credit, the team sold a modern townhouse in New York for a whopping $100M–a sale pitched as the priciest ever in New York’s history of commercial townhouse sales.

Oren and Tal also closed the deal for Miami’s most expensive mansion, apart from handling a string of other high-end, ultra-luxury sales.

 

 

5. Brian Erhahon

This young London-born rockstar barely has hit 30 (he’s 29), but he’s already running a 275-agent team. Working out Tustin, CA, Brian’s team has a transaction volume of $187.6M. He also recently earned a spot on Realtor Magazine’s 2018 list of 30 Under 30 Honorees.

In a competitive, cutthroat business, Brian has a unique spin on doing business. When he does events, all agents are welcome—even from competing companies, which draw up to 200 attendees. “We’re open and transparent and just like to collaborate,” Erhahon told Realtor Magazine.

Real Estate Investing

What is Debt Service Coverage Ratio and Why it’s Important?

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There are few numbers more important in commercial real estate than the debt service coverage ratio.

It’s one of the first things and one of the last things that any commercial lender or broker will talk about. It’s first and last because it’s simply that important!

A lot of people toss this term around without explaining it while others are using it without fully understanding it. It’s a lot more than just a simple formula and when you understand the debt coverage ratio, you’ll be able to control it to get maximum financing.

Let’s dive into it.

Why the DSCR is Important

Imagine finding a commercial property worth $400,000 and you need to put 25% down.

You think, “alright, I can afford that!” and move forward with the deal, expecting $300,000 in loan proceeds.

As you approach closing, your mortgage lender calls you to say “The maximum loan we can give you is $225,000 because the debt coverage ratio is too low.”

Now what do you do?

This is real and happens every day. To avoid a situation like this, you need to fully understand the debt service coverage ratio before you make offers.

The fact is that it’s regularly used by banks and loan officers to determine if a loan should be made and what the maximum loan should be. If you don’t have the extra money laying around, you won’t be able to close the deal and you’ll lose a lot of money.

Debt Service Coverage Ratio Defined

The debt coverage ratio is a simple ratio that tells a lender how much of your cash flow is use to cover the mortgage payment. It’s known as the debt service coverage ratio, debt coverage ratio, DSCR, or DCR.

Debt Service Coverage Ratio Calculation

In general, it’s calculated as:

Debt Coverage Ratio

where:

Net Operating Income = Gross Income – Total Operating Costs

Debt Service = Principal + Interest

To calculate the debt coverage ratio of a property, first, you need to calculate the NOI. To do this, take the total income, subtract any vacancy, and also deduct all operating costs.

Remember, operating costs do not include debt service (principal and interest), or capital expenditures. Insurance and taxes are operating costs, so don’t forget to include them.

Next, take the Net Operating Income and divide it by the annual debt service, which is the sum of all principal and interest payments during the year.

To do this you must take the entity’s total income and deduct any vacancy amounts and all operating expenses. Then take the net operating income and divide it by the property’s annual debt service, which is the total amount of all interest and principal paid on all of the property’s loans throughout the year.

How The Debt Ratio is Used

A Debt Coverage Ratio below 1 means the property does not generate enough revenue to cover the debt service while a debt ratio over 1 means the property should, in theory, generate enough revenue to pay all debts.

It’s very common for lenders to require a 1.2 DSCR, give or take.

If your debt coverage ratio is too low, the only way to make it work out better is to reduce the loan balance. Your NOI is the same but now your principal an interest decreases, making the ratio go up.

And that’s how you can get your loan proceeds cut dramatically.

Debt Coverage Ratio Example

Let’s say there is a property that generates $10,000 in revenue, has total operating costs of $4,800, and yearly debt service of $4,000

NOI = $10,000 – $4,800 = $5,200

Debt Coverage Ratio

In this example, the debt coverage ratio is above 1.2, so this would be a good risk for the bank and they’d likely give the loan.

Let’s say that interest rates change and the bank gives a slightly higher rate, causing a new debt service of $4,500.

DSCR

Notice how a small change can suddenly change everything!

The Bank Will Reduce Your Loan

Image result for bank loan

In this situation, the bank probably won’t reject the loan. Instead, they will reduce the loan balance until the payment comes in line with their minimum DSCR requirements.

In this situation, the lender will simply reverse the formula and determine what the maximum debt service can be. We can plug in the variables we know to solve for the allowable debt service

1.2 = $5,200 / Max Debt Service

Max Debt Service = $5,200 / 1.2

So, the maximum debt service can be $4,333. Now they just need to figure out what loan balance that will be based on their interest rate and loan term.

…and you’ll be stuck trying to squeeze some quarters out of your couch to pay for the extra down payment.

How the Debt Ratio Affects Returns

In the example above I showed how a loan can be adjusted down before the lender will give the loan. This can significantly reduce your cash on cash returns.

Let’s say you are buying a property in the example above costs $100,000 and requires a down payment of $25,000.

Let’s also say that it generates $10,000 in cash each year and has an NOI of $5,200.

Originally the debt service was supposed to be $4,000 per year, leaving $1,200 in total cash flow.

Now, let’s calculate our cash on cash return. We know that it’s calculated as:

Cash on Cash Return =  Total Cash Flow / Total Cash Invested

CoC = $1,200 / $25,000 = 4.8%

This means that for every $100 you invested, you get back $4.8 every year, cash in the bank. This is not to be confused with the overall return on investment.

But due to some fluke, the terms changed and now the debt service will increase. Let’s say that the interest rates increase so your $75,000 loan is at 4.5% now and your debt service goes up from $4,000 per year to roughly $4,560/year. You can see that the new debt service coverage ratio is well below the 1.2 minimum.

I’ll spare you the math, but when I punch it into a calculator I find that the maximum loan value is now roughly $71,000. This creates a yearly debt service of $4,320, bringing you back to 1.2

Comparing The Two Scenarios

Since you’re loan has gone down, you will need to invest an extra $4,000. You’ll also have a lower cash flow because of the higher debt service.

Cash Flow = $5,200 – $4,320 = 880.

Now let’s compare two scenarios. Imagine if you were still able to get 25% down, your cash on cash would look like:

CoC = $880 / $25,000 = 3.5%

Not very good, right? But, that’s because of the increased interest rates.

Now, let’s see how the change in the loan amount affects your return. Remember, your down payment is no longer $25k because it became $29k.

CoC = $880 / $29,000 = 3.03%

Even worse…

Never Neglect the Debt Coverage Ratio

You can see how important this simple ratio is to banks. It can change your returns, your down payment requirements, and it can even kill your deal.

This article originally appeared on IdealREI. Follow them on FacebookInstagram and Twitter.

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Real Estate Investing

How To Put That Extra Space In Your Property To Good Use

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A lot of investment properties have something we call bonus space.

It’s space that isn’t quite a bedroom, maybe not really living space, but doesn’t have any one specific use.

So, how do you use this space to create value for your investment property?

Well, that depends…

Can It Become A Bedroom?

A bedroom is almost always going to be the highest value use of any bonus area, so let’s try that first. So, it’s time to look up your local health/building codes to determine the requirements for a bedroom.

The International Residential Code, which most states follow, has several requirements to be considered a bedroom. States and municipalities are free to add on top of this, and some areas don’t use the IRC as their code.

Most places have a square footage requirement and also require a window and a closet. But, different states/municipalities may have different requirements so look them up.

Note About Egresses

Basements and Attics are notoriously bad places to be during a fire. There may be requirements for additional egresses for any living space that is in these two areas. Make sure you know all of the requirements before trying to make a bedroom.

Once you know the requirements, you can determine if a simple project can convert this random bonus space can be used as a bedroom.

For example, if it just needs a larger window, simply hire someone to install it. If you need a closet, get one put in.

It becomes more challenging if you need another egress added to a basement though.

It Can’t Be A Bedroom, Now What?

Most bonus space can’t be used as a bedroom, so don’t feel bad about that. The next thing is to figure out exactly what you can do with the space.

Determine What Kind Of Space You Have

The first step is to figure out exactly what you’re working with and what it can look like when you’re finished.

Regardless if it’s in an attic, basement, porch area, or whatever, it’ll need to be finished with drywall, paint, floors, lights, and heat/ac. Your bonus space probably has some of these already, but often not all.

Keep in Mind The Location

Basements are usually cool and damp, so you may need extra heat during the winter and a dehumidifier in the summer.

Attics are really hot, so you’ll need to add extra air conditioner. Also, you need to make sure your roof is ventilated properly before completely finishing an attic so take that into consideration before adding drywall to the rafters.

Every area will have it’s own unique considerations before starting the project.

Figure Out Its Highest and Best Use

This is really open to interpretation, but you need to figure out it’s best use for other people.

The best thing to do is to look at comparable sales in your market area. Look at what most other people are putting into their properties, then just copy them.

Here are a few common ways people use their bonus space

Den Or Media Room

The most common way people use their extra space is by using it as a second living room, den, or media room. These are all different words for similar things.

Basically, one living room will be a bit more formal for having guests over. The den or media room will be for watching TV or movies mostly.

If you are outfitting a room for this use, it might be beneficial to install speaker wires around the room (this is very cheap), and make sure there is cable and internet hookups.

Game Room

If your investment property already has an area dedicated as a den, you might want to consider outfitting it as a game room.

A Game Room is a room in the house for relaxing or socializing. It is typically furnished with a Pool TablePing Pong TableDart Area, or other recreational amenities.

Storage

A lot of people just need extra space for storage. Having a clean and dry area to toss junk is the lowest value use, but still important. Having this finished space will most likely make it more valuable anyhow.

Advertising Bonus Space

The next step is to advertise your bonus space. You’re either listing this property for sale, or listing it for rent (it’s an investment property, right?).

It’s important to bring attention to the bonus space, especially if it’s not listed in the square footage or other information about the property. This is really common for basements and attics.

In this situation, bring attention to it and make people image what they could use it for, but don’t specifically say it can be used for things that it shouldn’t be used as (such as a bedroom). People will often use the space however they want, including as a bedroom, but you should not encourage this if it’s not a legal bedroom.

So, you’d could potentially say something like:

There is an extra 400 square feet of finished bonus space in the attic that could be a game room for you and your friends, media room for late night movies, or whatever else you can imagine! It is heated, cooled, and has everything you need to enjoy it day and night all year long.

But you’d never want to say something like

There is an extra 300 square feet of finish bonus space in the basement that could be used as a media room, den, game room, or even an extra bedroom when friends come visit.

…assuming the bedroom is not legally a bedroom in your jurisdiction.

Charging For The Space

It’s hard to say what bonus space is worth, but it’s worth something.

The only way to figure it out is to try to sell it or rent it out, and see what the market will give you.

This article originally appeared on IdealREI.  Follow them on FacebookInstagram and Twitter.

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Real Estate Investing

10 Mistakes Homebuyers Must Avoid At All Costs

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Buying your home can be quite daunting, and if done wrong, it can bring with it enough financial regrets for the homebuyer. Here are 10 mistakes to avoid when buying your home.

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