Amid Dubai debt meltdown, Burj Dubai is officially open and was renamed after the UAE President, Burj Khalifa, last week on Monday January 4th, 2010.
For an earlier post on Burj Dubai, click here: http://wealthaspiration.blogspot.com/2009/03/worlds-tallest-building.html
During construction boom, Dubai borrowed $80 billion debt hoping to transform the economy into a regional tourism and financial hub. According to Deutsche Bank, UAE suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak.
Talking about Dubai brought back personal memory a little more than a decade ago. Beside a job offer I received from US based consulting company, I also had few other interviews with Singaporean, UK and UAE companies. The recruiter from UAE based company told me I could have the same salary as the US based company, except it was tax free. Finally after careful consideration, money though important, but was not the only thing in life, I pursued the offer from US based consulting company. The rest is a history.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Showing posts with label Multi-Family. Show all posts
Showing posts with label Multi-Family. Show all posts
Tuesday, January 12, 2010
Monday, May 11, 2009
Due Diligence on Apartment Building – Part 4
A group of people who bought lands at New Mexico tax auction, later discovered there were demolition and weed cutting liens on the properties, in the amount which was more than the property values. One buyer paid $800 for a property, only to find out a lien of $20,000 (Source: Clovis News Journal).
A condominium in Colma, California, was foreclosed by the HOA for $7,000. I was told that a young couple bought it. I don't know whether they realized that there was a mortgage lien in the amount of $600K, much more than the condo market value of around $300K. So the young couple got property worth of $300K for $607K. Great deal? Yeah, right!
Title and ownership information is a critical consideration when buying any kind of real properties, whether it is land, or single family or even apartment building. There are a lot of things which can encumber the title of a property. The simplest example is a mortgage. When you take a mortgage, the lender places a lien in the property as collateral. Let’s say one property has multiple liens at any one time. The priority of the liens is normally based on the time it gets recorded. The lien which is recorded earlier, takes higher priority over the lien which is recorded later. There are exceptions to this rule. Property tax takes the highest priority over all other liens. IRS lien has 120 days of redemption right, no matter when it is recorded.
Example of other type of liens:
• Home equity line of credit
• Mechanic’s lien: Lien placed by contractors for nonpayment of labors and/or material at the property
• Municipal services lien: Lien placed by the municipal for unpaid utilities and school assessment
• State income tax lien: Lien placed by the state for unpaid state income tax
• Judgment lien: Lien as a result of financial judgment
• Child support lien: Lien for past due child support
Other things that can impact the property’s title:
• Recorded lease option
• Property restrictions (eg: BMR property can only be sold at an approved price)
• Partial interest
Remember, something that sounds too good to be true, it probably is! Do your necessary due diligence.
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
A condominium in Colma, California, was foreclosed by the HOA for $7,000. I was told that a young couple bought it. I don't know whether they realized that there was a mortgage lien in the amount of $600K, much more than the condo market value of around $300K. So the young couple got property worth of $300K for $607K. Great deal? Yeah, right!
Title and ownership information is a critical consideration when buying any kind of real properties, whether it is land, or single family or even apartment building. There are a lot of things which can encumber the title of a property. The simplest example is a mortgage. When you take a mortgage, the lender places a lien in the property as collateral. Let’s say one property has multiple liens at any one time. The priority of the liens is normally based on the time it gets recorded. The lien which is recorded earlier, takes higher priority over the lien which is recorded later. There are exceptions to this rule. Property tax takes the highest priority over all other liens. IRS lien has 120 days of redemption right, no matter when it is recorded.
Example of other type of liens:
• Home equity line of credit
• Mechanic’s lien: Lien placed by contractors for nonpayment of labors and/or material at the property
• Municipal services lien: Lien placed by the municipal for unpaid utilities and school assessment
• State income tax lien: Lien placed by the state for unpaid state income tax
• Judgment lien: Lien as a result of financial judgment
• Child support lien: Lien for past due child support
Other things that can impact the property’s title:
• Recorded lease option
• Property restrictions (eg: BMR property can only be sold at an approved price)
• Partial interest
Remember, something that sounds too good to be true, it probably is! Do your necessary due diligence.
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
Thursday, May 7, 2009
Due Diligence on Apartment Building – Part 3
Jim Sullivan, a real estate broker from New Jersey, bought tax lien from Gloucester County in 1999. The defaulted owner was Accutherm, a thermometer factory. Sullivan foreclosed the property, hired contractor to make building modification, and leased it to Kiddie Kollege Day Care Center in 2004.
Apparently, the building was contaminated with mercury and the parents of 94 babies and children sued him. Mr. Sullivan asked Superior Court Judge to void the foreclosure and then he sued the previous building owner, Accutherm. Unfortunately, Sullivan is still liable to clean up the mercury. The state Department of Environmental Protection ordered Sullivan to demolish the building and clean up the site, an estimated $1 million project. OUCH!
Source: Gloucester County Times, The Philadelphia Inquirer
The story is a perfect example of investor’s failure to conduct due diligence on environmental issue. There are firms that specialize and are experienced in environmental analysis and engineering. They can do proper research to determine the potential presence of hazardous materials. Examples of hazardous materials are asbestos, lead-based paint, mold, radon, gas leaks from underground storage tanks and … mercury. Get familiar and review environmental regulations at federal, state and local jurisdiction.
You may want to consider phase 1 environmental assessment. This assessment will examine the history of the building and determine if potential contamination exists. It doesn't involve physical analysis and testing of the soil, water, air or building material. If it is identified that further investigation should be performed, then phase 2 environmental assessment has to be done. In phase 2 assessment, actual sampling of soil or water will be collected and tested in laboratory.
Contaminated sites are often referred to as brownfields. In one of his articles, Joel W. Reese, an environmental litigation attorney from Dallas, suggested that buyer should add a transfer of claims for environmental injury in the deed. In general the right to seek compensation for environmental injury is a personal right that accrues to the owner at the time injury happens. Without transfer of claims in the deed, this right is left with previous owner, and successor buyer may not be able to recover environmental injury damages without first incurring the cost of cleaning up the property. Consult attorney for this matter.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Apparently, the building was contaminated with mercury and the parents of 94 babies and children sued him. Mr. Sullivan asked Superior Court Judge to void the foreclosure and then he sued the previous building owner, Accutherm. Unfortunately, Sullivan is still liable to clean up the mercury. The state Department of Environmental Protection ordered Sullivan to demolish the building and clean up the site, an estimated $1 million project. OUCH!
Source: Gloucester County Times, The Philadelphia Inquirer
The story is a perfect example of investor’s failure to conduct due diligence on environmental issue. There are firms that specialize and are experienced in environmental analysis and engineering. They can do proper research to determine the potential presence of hazardous materials. Examples of hazardous materials are asbestos, lead-based paint, mold, radon, gas leaks from underground storage tanks and … mercury. Get familiar and review environmental regulations at federal, state and local jurisdiction.
You may want to consider phase 1 environmental assessment. This assessment will examine the history of the building and determine if potential contamination exists. It doesn't involve physical analysis and testing of the soil, water, air or building material. If it is identified that further investigation should be performed, then phase 2 environmental assessment has to be done. In phase 2 assessment, actual sampling of soil or water will be collected and tested in laboratory.
Contaminated sites are often referred to as brownfields. In one of his articles, Joel W. Reese, an environmental litigation attorney from Dallas, suggested that buyer should add a transfer of claims for environmental injury in the deed. In general the right to seek compensation for environmental injury is a personal right that accrues to the owner at the time injury happens. Without transfer of claims in the deed, this right is left with previous owner, and successor buyer may not be able to recover environmental injury damages without first incurring the cost of cleaning up the property. Consult attorney for this matter.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Wednesday, May 6, 2009
Due Diligence on Apartment Building – Part 2
Compliance to accessibility laws is often overlooked by many people. Apartment buildings that are not accessible to people with disabilities easily invite discrimination lawsuit. Ignorance can lead you to penalty for fair housing laws violation and the cost of correction can be hefty.
Some items you have to check during your due diligence period:
• Clear floor space to allow wheelchair access and turning
• Doors with proper width
• The steepness of the slopes and curb ramps
• Minimum number of disabled designated parking spaces and passenger loading zones
• Reinforced walls for grab bars in the toilet, bathtub and shower stall
• Accessible locations for light switches, electrical outlets and thermostat.
• Any protruding objects that reduce the headroom clearance which are hazardous for the blinds
Beside compliance to federal laws such as Americans with Disabilities Act (ADA) and Fair Housing Act, you have to comply to the regulation of state and local jurisdiction as well.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Some items you have to check during your due diligence period:
• Clear floor space to allow wheelchair access and turning
• Doors with proper width
• The steepness of the slopes and curb ramps
• Minimum number of disabled designated parking spaces and passenger loading zones
• Reinforced walls for grab bars in the toilet, bathtub and shower stall
• Accessible locations for light switches, electrical outlets and thermostat.
• Any protruding objects that reduce the headroom clearance which are hazardous for the blinds
Beside compliance to federal laws such as Americans with Disabilities Act (ADA) and Fair Housing Act, you have to comply to the regulation of state and local jurisdiction as well.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Monday, May 4, 2009
Due Diligence on Apartment Building – Part 1
This article is to fulfill what I have promised on March 16th, 2009. When you start to play with 5+ unit apartment building, there are various subjects that you have to consider, which don't exist when you are in the 1-4 unit game. Since it is impossible to cover everything in a blog, I will only touch few important subjects.
Today, we will talk about valuation method. Unlike 1-4 unit single family houses, in which sales comparison method is normally used with the most emphasis, income method is used for apartment building valuation. There are three factors here, the capitalization rate or commonly referred to as “cap rate”, net operating income (NOI) and building value.
Net Operating Income (NOI)
Building value = ----------------------------------------
Cap Rate
The capitalization rate is determined based on the capitalization rate of apartment buildings sold recently within that particular area/neighborhood.
Net operating income is gross operating income minus operating expenses. Note that operating expenses don't include debt service, depreciation and income taxes.
What do you have to account when analyzing net operating income?
Income
• At least the last one year of monthly P&L statements
• Three to five years of annual P & L statements and income tax returns
• Rent rolls and payment history
• Copy of all lease agreements and any addendums
• Security deposit records
• Other source of income such as income from vending machine and laundry
Expense
• The last three years of property tax bills
• Insurance policy: term, exclusion, all riders
• Property management agreement
• Utility bills: gas, electric, water & sewer, trash
• Any assumable service contracts such as landscaping and wireless internet services
• Any assumable warranty from vendors
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Today, we will talk about valuation method. Unlike 1-4 unit single family houses, in which sales comparison method is normally used with the most emphasis, income method is used for apartment building valuation. There are three factors here, the capitalization rate or commonly referred to as “cap rate”, net operating income (NOI) and building value.
Net Operating Income (NOI)
Building value = ----------------------------------------
Cap Rate
The capitalization rate is determined based on the capitalization rate of apartment buildings sold recently within that particular area/neighborhood.
Net operating income is gross operating income minus operating expenses. Note that operating expenses don't include debt service, depreciation and income taxes.
What do you have to account when analyzing net operating income?
Income
• At least the last one year of monthly P&L statements
• Three to five years of annual P & L statements and income tax returns
• Rent rolls and payment history
• Copy of all lease agreements and any addendums
• Security deposit records
• Other source of income such as income from vending machine and laundry
Expense
• The last three years of property tax bills
• Insurance policy: term, exclusion, all riders
• Property management agreement
• Utility bills: gas, electric, water & sewer, trash
• Any assumable service contracts such as landscaping and wireless internet services
• Any assumable warranty from vendors
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Monday, March 30, 2009
The World’s Tallest Building
Started in 2004 and scheduled for completion in late 2009, the world’s tallest building today is located in Dubai, United Arab Emirates. Burj Dubai, 162 stories, developed by Emaar Properties, is a mixed of hotel and luxury apartments, with four luxurious pools and spas, 15,000 sq-ft of fitness facilities and an observation deck on floor 124. Although the official height has been kept private until completion, the height is estimated around 2,684 feet.
Other than Burj Dubai, which means “Dubai Tower” in Arabic, the US$20-billion mega project of downtown Burj Dubai has manmade lake, shopping malls, business centers and premium hotels.
According to Mohamed Alabbar, Chairman of Emaar Properties, Burj Dubai goes beyond its physical specifications. It is about the human spirit of attaining the seemingly impossible and setting new benchmarks.
Source: http://www.burjdubai.com, http://www.burjdubaiskyscraper.com
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
Other than Burj Dubai, which means “Dubai Tower” in Arabic, the US$20-billion mega project of downtown Burj Dubai has manmade lake, shopping malls, business centers and premium hotels.
According to Mohamed Alabbar, Chairman of Emaar Properties, Burj Dubai goes beyond its physical specifications. It is about the human spirit of attaining the seemingly impossible and setting new benchmarks.
Source: http://www.burjdubai.com, http://www.burjdubaiskyscraper.com
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
Tuesday, March 24, 2009
Top Apartment Market by Marcus & Millichap
Marcus & Millichap released the 2009 National Apartment Index. The index tracks different markets based on various criteria, such as effective rent growth, vacancy, employment, construction and affordability. Here are the top 20 markets for 2008 and 2009.
Source: Marcus & Millichap
San Francisco ranks the first position both in 2008 and 2009 because of its strong effective rent growth. It is very interesting fact that despite of the high foreclosure and unemployment rate in California, six metropolitan areas in California occupy the top 8 markets during 2008 and 2009.
Another observation worth to mention, the higher the rank of the market, the cap rate tends to be lower.
So should you invest in California, or should you invest out of the state of California? There is no general answer to this question. It is very specific to your circumstances and objectives. I will write the advantages and disadvantages of investing in California versus investing out of California to help you in your investment decision. Come back and feel free to post a comment or feedback!
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
| Rank | 2008 | 2009 | Cap Rate Range |
| 1 | San Francisco | San Francisco | mid- to high-4 % |
| 2 | Seattle | San Diego | low-6 % |
| 3 | New York City | Washington, D.C. | 5.5 % to 7.0 % |
| 4 | San Jose | Los Angeles | mid- to high-5 % |
| 5 | Oakland | Seattle | mid- to high-5 % |
| 6 | Los Angeles | Oakland | low-6 % |
| 7 | Orange County | San Jose | high-4 % |
| 8 | San Diego | Orange County | mid-3 % to low-4 % |
| 9 | Washington, D.C. | New York City | not stated |
| 10 | Portland | Portland | not stated |
| 11 | Chicago | Denver | high-6 % to low-7 % |
| 12 | Boston | Philadelphia | low- to mid-7 % |
| 13 | Denver | Chicago | high-6 % to low-7 % |
| 14 | Las Vegas | New Jersey | not stated |
| 15 | Fort Lauderdale | Minneapolis-St. Paul | low- to mid-7 % |
| 16 | Riverside-San Bernardino | Las Vegas | mid- to high-6 % |
| 17 | Salt Lake City | Riverside-San Bernardino | mid- to high-6 % |
| 18 | Miami | Salt Lake City | mid- to high-6 % |
| 19 | Phoenix | Miami | 7 % to 8 % |
| 20 | Tucson | Milwaukee | low- to mid-8 % |
San Francisco ranks the first position both in 2008 and 2009 because of its strong effective rent growth. It is very interesting fact that despite of the high foreclosure and unemployment rate in California, six metropolitan areas in California occupy the top 8 markets during 2008 and 2009.
Another observation worth to mention, the higher the rank of the market, the cap rate tends to be lower.
So should you invest in California, or should you invest out of the state of California? There is no general answer to this question. It is very specific to your circumstances and objectives. I will write the advantages and disadvantages of investing in California versus investing out of California to help you in your investment decision. Come back and feel free to post a comment or feedback!
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
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