James Fales Finance Blog

By John Tozzi

For a certain breed of conscious consumer, shopping locally is paramount. It signals support for independent stores over big chains, urban downtowns over sprawling shopping centers, small farmers and craftsmen over multinationals. The theory is that a bigger piece of each dollar spent locally stays in the community, as those business owners buy from local suppliers and reinvest profits close to home.

Even the most dedicated local shoppers, however, have trouble extending that philosophy to their savings. While some people have shifted deposits out of Wall Street banks and into local lenders and credit unions, most investors have no way to steer portions of their long-term savings, such as retirement accounts, to Main Street companies. “There are 7,500 mutual funds. Not one invests in local businesses,” says Michael Shuman, an economist and author of Local Dollars, Local Sense (Chelsea Green, 2012).

Read the full article here http://www.businessweek.com/articles/2012-04-25/investing-in-main-street-instead-of-just-wall-street

The Miami Association of Realtors is recording a record number of home sales, thanks in large part to increasing interest from foreign investors, cash buyers of distressed properties and vacation-home seekers. The average sales price for single-family homes in the Miami-Dade County area increased 21.8% while average condo prices rose 23% for the year ending in March, according to Florida Realtors Industry Data. That’s a significant jump, particularly when compared to statewide price averages in both categories. Sales dropped all across the state, however, despite better price performance and a continuing demand for the purchase of distressed homes. For more on this continue reading the following article from PropertyWire.

For the fourth consecutive month, Miami home prices posted strong gains in March with the median sales price of condominiums surging 46% compared to a year earlier, according to the latest figures from the Miami Association of Realtors.

The median condo price reached $141,700 in March while the median sales price of single family homes rose 13% to $180,000.

read the full article here http://www.nuwireinvestor.com/articles/prices-surge-for-miami-homes-condos-59107.aspx

But concerns about defaults vastly overblown, says Friedlander; try telling that to clients

By Philip Loyd

The back of a napkin, really?

Have you ever heard the term, the Napkin Test?  It’s quite common, really.  It just means, the best business ideas don’t always come from long, drawn-out documents, mission statements, or flashy power-point presentations.  The best business ideas sometimes come from the back of a napkin, literally.  Some of the biggest companies in the world actually started with a beer, some peanuts, and the back of a bar napkin.  One such great story is Richard Trait, founder of Cranium.  It’s a great story.

Napkins and Multi-family investing?

Being in the real estate business myself, I’ve been turning houses and investing in the real estate market for years.  But just like with anyone else, I’m always trying to move up in the world.  Managing so many individual, single-family properties can be quite prosperous, but it can be quite time-consuming as well.

So I was talking to a friend of mine and he was telling me about multi-family investing, or multi-unit investing, as it is known in other circles.  They are the same thing.

Not to get bogged down too much in the definition of multi-unit investing, it is quite simply what it says.  It’s the whole idea of owning a complex with multiple units, for the purpose of renting out those units.  And the complex doesn’t even have to be large.  Even a six-unit complex counts.  That’s what I’m looking at right now, just a small, six-unit complex to get my feet wet.

The Napkin Test, and how it pertains to multi-family investing

So I was looking everywhere on the web for ideas on real estate investingwhen I came across this great YouTube video by this Mr. Clean-looking guy by the name of James Fales.  It’s called, aptly enough, “The Napkin Test.”  Yes, it’s that same theory I talked about before, just now applied to the subject of multi-family investments.

Take it away, Mr. Fales

James Fales is one of the best in the business.  He not only goes into detail all the ins and outs of multi-family investing, he has such a matter-of-fact, everyday approach that even someone like me can understand.

While I’m not going to get into the details, you really have to let the man himself take you step by step, I will give you a brief summary of some of the things he covers.

He uses 407 units in Houston, Texas as an example.  He goes over such important aspects as

• Gross potential income possible
• Total gross income figured at a reasonable 80% occupancy
• Total expenses are: $4000, per unit, per year.  (A proven formula used by experts all over, which covers everything.)

And then all he does is subtract expenses from the gross potential income possible, and Wallah!, he has is net income expectations.  All this is based on a property that is managed correctly.  If management correctly, as he states, there is no reason you can’t make money.

He even makes a funny comment on how if you are at 100% occupancy rate, your management company is not doing its job right, and the rents need to be raised.

But just like the above bullet points suggest, you could figure out all this on the space of a small bar napkin.  What really amazes me is the property he uses in the example, the real numbers are pretty close to his estimate.  But there is room in the middle for more money to be made, and this is where someone like him sees opportunity.

But as he mentions, this is just a matter of the property not being managed to its full potential.  When he finds a property not living up to its full potential, as he states, that’s when he’s interested in making an offer.  Simple as that.

In closing

Fales makes it all look so easy, because in reality, it is.  With someone like him managing your property, you too could realize maximum gross potential income.  But don’t just take my word for it.  Watch the video.

Here is a link to that YouTube video I was talking about called “The Napkin Test” by James Fales.  This Fales guy, I’ve heard, is like the Wyatt Earp of the multi-family investment industry.

Fales does multi-family investments in Houston, Texas, but the technique is a sound one most anywhere.  Make sure and pay attention.  This guy talks fast, but he makes a lot of sense.

References: “The Napkin Test” Philip Loyd. Articlebase.com 4/16/2012. 5/7/2012.

http://www.articlesbase.com/entrepreneurship-articles/the-napkin-test-5829857.html

Multi-family Investing

Multi-family investing is a highly profitable real estate investment strategy here are the nuts and bolts of this strategy with 5 helpful tips.

Two sides to every coin

One of the best advantages to owning rental properties is known as “using other people’s money” which means while renting out other people will be paying mortgage and property taxes as the property appreciates in value. Your main obligation as a multi-family investment property owner is to generate sufficient income in order to meet current debt services like your mortgage payment, property taxes, and maintenance and management fees.

Cash Flow

The amount of cash flow in multi-unit properties will far exceed that of a single dwelling property, but with it also comes higher risk potential

Let Someone Else Do All The Work

With a single dwelling rental home when something goes wrong the tenants will be calling you directly to fix a plumbing or roofing problem. But, in multi-unit housing it becomes fiscally efficient to hire a management company to fix all of the residential problems thus ridding you of having to deal with problems directly.

Cha-ching!

The real reason for multi family investing of course is the increased revenue. Sure, there’s money in flipping single-family residences.  But the real money is in multi-family investing. Remember, on your first time out, you can buy just a six until property.  No reason to go crazy your first time.  Test the waters first and get the hang of it.  One day in the not-to-distant future I hope to be owning my own 2400 or 3000-unit property, and then I’ll be in the big leagues.

One for the road

Finally check out James Fales’ youtube advice video here for more detailed information.

By Mark Schoeff Jr.

The profound demographic trend that is boosting demand for investment advice — the millions of baby boomers retiring or planning their retirement — also is threatening the financial advisory sector with a talent shortage.

By Mary Beth Franklin

If your clients can wait, here is yet another reason why it can pay to delay claiming Social Security benefits: a smaller tax bite in later years.