Investment Values Norair Yeretsian

Three investors are considering an investment opportunity which has a

Net Operating Income of  $ 125,000 .

Investor One wants to achieve a return of  10% on the capital he invests.

Investor Two wants to achieve a return of  15% on his equity investment.

Investor Three demands 18.5% on his invested capital.

Using the direct capitalization approach to estimating Value
the three investors calculate the following :

Given the above :

Investor One determines :      125,000 / 10 %  = $ 1,250,000  Value .

Investor Two determines :      125,000/ 15%   =  $ 833,333 Value .

Investor Three determines :   125,000 / 18.5% = $ 675,676  Value.

Using the Rule of 72 we can quickly calculate the time it would take each

of our investors to double their money using each investors’ desired rate of return,

with the benefit of  Time Value of Money ( money being compounded ).

Investor One   72 / 10 =  7.2 years to double his money .

Investor Two  72 / 15 =   4.8 years to double his money.

Investor Three 72/ 18.5 =  3.89 years to double his money.

Be a more demanding investor, you will only get out of life

and investment what you expect and usually nothing more.

Let discuss it , leave a comment / make a suggestion …

Do you have any special techniques to make valuations ?

or Twitter @ EnvoyCapRealty .

nyeretsian@yahoo.com  June 30 , 2010

Savvy Investors Norair Yeretsian

There’s Lots of Money looking for a home but not necessarily real estate?

U.S. Private Equity firms are on the sidelines with $500 billion waiting for an
attractive opportunity to buy. [ New York Times , 6/23/2010]

One of these is the Carlyle Group which is sitting on $18 billion.
However buyouts have been scarce and prices are rising because
competition for good assets.

The Carlyle Group is also a major Manhattan landlord and
their portfolio is doing very well one of their buildings in their
portfolio of properties is 666 Fifth Ave the retail portion.

Where they just signed one of the biggest retail leases in Manhattan history
with a Japanese clothing company for 90,000 sf of space on 3 floors for
$300 million on a 15 year lease deal , which commences 2011 .
They purchased the retail portion in 2008 and on this leased space  it is
working out to be approximately a 30% return without the benefit of  TVM.

Some of the investment criteria for Private Equity firms ;

Investor’s money is generally tied up for 10 years.

Money must be invested within first 3 to 5 years of funds’ life.

Management fees run approximately 2% of assets value and 20% of annual profits.

They are generally looking for returns in high teens – 20% plus , however looking
forward  investor’s returns over the life of the fund are likely to drop into the low to mid-teens.

Returns will be even lower once fees are factored in.

One factor in the  modest forecast is rising prices for buyouts, because of competition.

The ” tough competition for deals” had driven up valuations recently.

Money is there , but it is patiently waiting to meet an opportunity.

Leave a comment or Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com     June 29, 2010

Where’s the money? Show me the Money ! Norair Yeretsian

Analysts turned gloomier about the outlook for U.S. home prices as
sales slump and home re-sales declined in May .[WSJ-6/23/2010]

The classical way to turn this around would have been lower interest rates
and increase available money for mortgage lending purposes.

However the  weak real estate market in the US also has another problem.

Lenders not lending to potential borrows ( who may qualify ) to
purchase the real estate because they don’t want the exposure to real estate risk.

Has the pendulum swung the other way now, where lenders are being conservative
and tight on lending money for real estate ?

Are the Banks paving the way for a Double Dip Recession and a further crashing in real estate ?

In one of my class this week a student spoke about the difficulty his son and
daughter in law were having trying to obtain a mortgage to purchase a house
in the US because they felt the timing was right for them to do so.

They are both  employed at reasonably good jobs with income(s) and a down-payment.
Yet they were having great difficulty finding a willing lender.

In an article by Ben Tripp on the Huffingtonpost.com , Ben posted his story and titled :

The Real Estate Plague Nobody is Talking About .
Ben describes his family’s challenge and difficulty in trying to get a mortgage
to purchase their  house — without success .

He wonders how America can come out of this Housing Crisis if no one is lending the
money to finance the purchase.

“If it’s this difficult for qualified buyers to get into a house.
I don’t see real estate making a comeback any time soon – and if the banks want another
bailout, they can send the request care of current resident . ”

He has been told ” this situation is epidemic.
Vast numbers of highly qualified buyers can’t get into houses, because the banks
don’t want to lend.”We were told that crisis had passed, but it hasn’t… the  American
economy runs on consumer spending,
and the queen of all consumer expenditures is a house in the suburbs.”

So the U.S. went from everybody and anybody get a home loan to nobody,
even if you qualify get a home loan.

Wow, sounds like the major leaking financial crisis has been capped ,
but this could make the problem a lot worse for America’s real estate.

Leave a comment or two, you can also Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com     June 28, 2010

Speak to your Kids about Investing II … Norair Yeretsian

Well where would you start to speak to your kids about investing
if you were challenged by the subject ?

Do some research and read some basic books which provide a
beginners perspective on the topic , such books like :

Buffettology ( American )

The Wealthy Barber  ( Canadian )
Rich Dad, Poor Dad  ( American)

Just do the research first do not buy anything as yet .

Go to your local bank and ask to speak with one of their investment
advisers (take your son or daughter with you for the education ).
Get a perspective on their products, services, invest ( cost to buy in ) , fees , etc…

Go on-line and visit each investment brokerage’s website to see what their have
explore the Educational / on-line simply Tutorials they offer ( free education ) .

Go on-line to the leading financial news websites
( go to your local bookstore to find out who they are ).

Some good ones are : The Wall Street Journal   ( American )

Globeinvestor.com ( Canadian )

Read some Blogs on investing…you may even want to watch CNBC .
The is a show called Mad Money with Jim Kramer
( entertaining and educational on investing in the market )

You could track some stocks for fun and put them on your watch list
at some of these on-line new feed websites.

If you make it a game style exercise , there’s learning , exploring and discovery happening.

As your confidence builds and you have some savings you can start to explore the market for real .

Be cautious, don’t hand your money to anybody — and don’t all your money in one place / stock.

If you have a bigger capital base, and an income source — you may want to consider Real Estate.

Think twice cut once .  ( old carpenter’s saying )

If you have some comments or other suggestions leave a comment or Twitter works
at  EnvoyCapRealty .

nyeretsian@yahoo.com  June 27, 2010

Speak to your Kids about Investing ! Norair Yeretsian

My son asked me about investing today and how you can buy stocks of a company.
What are the prices ?
How are they determined ?

Can He buy one share of stock ?
Can Kids even own stock or do you have to be a certain age ?

WOW !

These are great questions ,  he did not ask about investing in real estate .
Well at least not yet . Given time I am sure he will .

I was answering his questions as fast as they where coming out of him.

Apple, Microsoft, who makes the blackberry ? RIM : research in motion.

Canadian Tire, can I buy it Dad ? How much is it ?

I am just happy he is asking the questions about investing and getting started.

Getting started early is a key to success in the investment and wealth accumulation game.

Can I lose my money Dad ?

Yes , you can lose.
However if you do your homework and study the company and the
market you will reduce your chances of loss.

I don’t have thousand of dollars , but can I buy just one share ?

You can start with a small automatic monthly investment of say $ 25 to $50 into a
mutual fund at your bank, start with a balanced one or go for the new TFSA
( tax-free saving account – with self-directed trading ).
As you build up your equity and have the returns / dividends or distributions
build up and compound  - and you achieve the goal you set for yourself.
Then consider the next step, using the equity that has built up to purchase an
income producing asset such as a rental property . This may take several years ,
but that is okay. Your first goal should be to build up an equity base.
This is the amount that your will eventually use as your down-payment for the acquisition.

Great things can and will happen when you start Young.

Keep learning and keep investing for a great future.

Talk to your kids about investing and discuss/explore the investment world for your children.

If you have some great ideas for young people to consider,
please send us a comment below or Twitter @ EnvoyCapRealty.

nyeretsian@yahoo.com   June 26, 2010

Buying is Only the first step… Norair Yeretsian

Successfully acquiring a commercial property — income producing property
is a lot of work in itself, however it does not  end there .
Getting it is just the beginning … now the work starts.

You will need to manage and maintain it , collect rents, negotiate leases,
supervise and arrange all work done at the property.
Do lots of public relations among tenants in the property
( keeping everyone happy — human nature being what it is),
and at times the neighboring properties.
And always with government agencies and property inspectors, etc.

So that it will deliver all that was promised to buyer
and that all the desired objectives of the purchaser are achieved !

Have you assembled the right team of professionals that will be
there to deliver  the scope of work required and meet the  objectives of the buyer .

If it is going to be a learning curve for your team because it is a new property in
the portfolio, it will cost you in yields and returns .

So make sure you have a plan , before acquiring the first one.

The Plan , full scope from purchase, through management and final sale
or refinance / re-leverage the property to acquire the next one – for growth.

The Strategic Investment Goal (SIG) being a part of your plan.

The Tax plan with the investment, with reviews with financial adviser ( CA).

Measurable results of your plan and timely refinement / re-work of it.

Quarterly meeting and review  with your commercial realtor to understand
the changing nature of the property market(s) where you have investments.

The weekly or monthly site tours and reviews , will help you keep in tune with
your property’s needs and upkeep.
The annual review of the commercial insurance policy and the liability
coverage to make sure all is in order.

As part of your PR work and basic communication with your tenants a
quarterly or semi-annual newsletter may help keep the channels open.

The property will require your teams TLC ( tender loving care ) both on
the physical asset and in your dealings with the tenants.

As your system of managing the property evolves over time and
greater efficiencies are achieved, so will your profits rise.

The management will come to realize the most suitable tenants for the property
and the highest paying for the property .
This will become the target for marketing purposes.

There is a lot of work to be done, Buying the property is the first step in a long journey.

What do you think ? Leave a comment below…. let’s talk .

@ Twitter  :      EnvoyCapRealty

nyeretsian@yahoo.com June 25 , 2010

Illegal Uses of Real Estate , Norair Yeretsian

Illegal uses of real estate , We are not trying to promote this, we are exploring
this concept from an investor’s and landlord’s perspective and the real challenges
that are out there, to worry about and be prepared to deal with in these times.

There are different degrees of illegal and various types
of activities which range from zoning by-law infractions to the criminal.
Different laws, various penalties ranging from simple fines ( if convicted) to
possible jail time (if/when found guilty ) .
No question there are many risks associated with this type(s) of activity.
However , why does it seem to go on and at times seem to prosper?

There are at least two main categories of this type of activity.

The first category also have at least two different types :

A: the knowingly noncompliant ( zoning by-laws) which could be resolved
with the proper applications at your City Hall building / zoning department .
Some are simple : one application and appropriate fee .
Then you want for the city to review and inspect,etc…and approve.

The others are more complex , requiring the hiring of planning consultants,
architects, engineers ,etc.. with the need for several applications, drawings,
possible studies ( traffic counts, impacts on the community, community meetings etc…)

B:  The unknown not permitted use of the property.
Here it could be a neighboring property and the activity or uses they seem to be doing
on it may not be an allowable use of the property.
However no one will really know unless and until somebody looks into it or files a complaint.
You can request to see whether the property and the use are permitted by filing and paying a
fee for a PPR ( preliminary project review) then they  will tell you whether
the use is in compliance or noncompliance .

The second category is more deviant ; illegal activity that takes place in real estate
for the purposes of making money and / or having fun:

loud parties … noise by-laws and maybe drug use at the party ( that’s more then personal consumption)

some examples are :  1. sex trade activity

1. grow operations (marijuana) and Drug labs ( all kinds of drugs )

2. sex trade activities

3. after hours booze kans ( alcohol) ; unlicensed

4. Gambling ( gaming)

5. Toxic materials unsafely stored / warehoused and or dangerous materials

6. anything else you can think of  that’s criminal and deviant ( check out the daily newspaper)

Let’s discuss it , educate us on the other types that may be out there ,leave a comment below

nyeretsian@yahoo.com   June 24, 2010

Head Winds for Real Estate 2010 Norair Yeretsian

Number One head wind for real estate      :  Government ( all 3 levels )

The less government(s) and incompetent rules and regulations the better for all
– especially for business and the economy.

Mark Twain said it best :  No One’s  ” life is safe whenever the legislature is in session.”

With the federal and provincial governments  coming together on the new HST tax,
which will impact all commercial rents as of July 1/2010 .
The HST is not a problem in itself, it’s the changing evolving tax regime .
And the forcing of each and every commercial landlord becoming an unpaid
tax collector for the federal government. With all that this may entail .

On the City level, landlords have been the unpaid tax collectors for property
taxes and the caretakers to make sure all the City’s standards ( guidelines  – zoning-bylaws
are followed , or we are penalized with fines and interest charges of 1.5 % per month compounded )
And the City of Toronto seems to run the place like a quasi dictatorship.
One of my colleagues last week received a notice from the City of Toronto and
if he wished to appeal it — to send the notice back with $250.
You have to pay them to appeal ( or demonstrate your objection to their decision?).

What is this all about ? Where is the democracy ? Where are the rights of the citizen?

Realty taxes ( are the closes we come to a wealth tax in the country ) are an ATM for local government .

The City spends at will and taxes aggressively .
There seems to be no business sense,or concern for that matter for the health and survival
of the small  business community  in the city. Big business has a voice.

Small business is busy working to pay all the expenses Rent ,Property Taxes ,Insurance, etc…

The view seems to be ( and appearances speak louder than words — the new lexicon )

that business is  a cow , there to be milked for the benefit of the city,province or federal governments.

The City’s inefficient spending  and reckless over spending has spilled over into taxing residential properties more aggressively.

The City’s attitude seems to be we have a right to tax and we will exercise that privilege  to the full extent of the law.

Now it has become taxation for the sake of taxation.

Warning be careful ,this will be bumpy. The natives are starting to get restless.

Where and How the City spends our collective money is important and should be reviewed
and constructively critiqued  by the next level of government ( not necessarily from a political
perspective , more from a management/efficiency perspective — based on contracts and city council ).

We must be careful not to exhausted or kill the sources of City revenues.

The British government this afternoon announced they will be starting to cut back spending by 25%.

The City of Toronto should take heed of this wise practice and start to scale back to reality.

Number Two : Availability of  Financing ( market  liquidity for commercial — investment real estate)

Number Three : Interest Rates , untimely and unreasonable .

They will/should  go up or down based upon fundamentals with clear justification -
not because well they have been low for a long time.

Number Four : Inflation – it is with us and it seems to  have never  left us.

The number one driving force behind inflation is Government .

Number Five : Economy ( local economy + consumer spending / consumer confidence )

Number Six: Business creation,start-ups and defaults ( this is the source of demand for our product : space )

Number Seven : The lack of property rights  and erosion of the little  rights we enjoyed with our properties.

If you have more head wind items , please leave a comment below to add to our list…

Also on Twitter : EnvoyCapRealty

nyeretsian@yahoo.com      June 23 / 2010

Austerity Now ! Norair Yeretsian

Well the Bank of  Canada, decided to slowly start to raise rates
this may be a signal from the Bank that lends to the Banks
that money will cost more, in what appears a recovering economy.
The real professionalism will come out much later, when we shall
see if a more balanced growth environment is created and we are
not killing off any chance our businesses have to recover and correct
their position(s)  and growth prospects and start to re-hire  .

With rising interest rates, residential real estate’s rising valuation slows
and  declines historically speaking. This is not good news for real estate.

Just in time of course as the new harmonized tax :  HST comes into play

July 1, 2010 in Ontario,Canada and causes its anxiety among consumers.

This will affect all commercial real estate lease agreements and payments.
As we prepare a memo to all our tenants in our industrial/retail and office
buildings which says they must add an additional 8% to their current rent
to address the new HST ( 13% on top of the combined : minimum plus additional rents )
[ commercial tenants are currently paying 5% GST which will end at 11:59 June 30/2010].

This is a new tax for commercial real estate to incorporate into its system and deal with
at the end it does not matter , however in the short-term it will require an education.

For small start-up companies or individuals — it will be one more thing to worry about.

One more thing to be responsible for, however if you were involved with consumers
you as a business are already collecting this amount and it will now work out more in
your favor .As it is to run like the GST with input and output credits and the like.

Is there any time a better time to change / add new taxes ?
Is the economy in a condition to deal with it ?

We shall should find out.

Consumers are already uncertain about spending ( lower confidence) and
according to records are de-leveraging.

It is the summer months ( July and August) to test run it, before the last quarter .

If consumers cut back too much , we will loss more commercial tenants.
And everyone gets less revenue : private and public .

What is on the horizon as a counter balance to help push consumers to
spend and help the economy and businesses to invest and expand their operations.
Invest in research and development and push innovation — new products and services
or just better of both.
There is a sense of a pending federal election on the horizon – this wouldn’t help .
It will help pollster and advertising agencies involved with the political parties ,
but what about the rest of us ?

The City of Toronto does have an election coming up in the Fall 2010 and a new mayor to be elected
with hopefully a better fiscal management and just better management.

Save your money, because things are uncertain and there are price increases coming
and maybe tax increases coming — this may be the new normal economy and lifestyle .

An austerity life style for all ?

Let’s discuss your opinion on this with your comment below  or

on Twitter at  :  EnvoyCapRealty

nyeretsian@yahoo.com June 22, 2010

No Magic Numbers Please ! Norair Yeretsian

Inflated appraisals do not help anyone at anytime.

Least of all the health of the real estate economy .

The confidence of  lenders dealing with buyers and sellers,

realtors and appraisers the many relationships within this economy.

At some level there must be an understanding of a baseline for realistic valuations

so that the whole system works properly for the benefit of all participants.

The investor who is placing his funds with a bank/lender ,

who risks placing this capital as a mortgage or loan towards this real estate.

To a real estate purchaser who gives a mortgage (the mortgagor) and makes

a pledge to pay this mortgage over the next 3/5/10 years over a 25 year

amortization — believing he/she has purchased a solid asset of value.

The integrity of the system is predicated upon all playing by predetermined rules.

That are clearly defined and transparency of application.

When lenders and appraiser shift lending valuations or criteria away from

understandable and valid principles of  lending.   Or create artificial shortages of

liquidity , driving up interest rates or brokerage fees to the investor or the general

public, they move away from the system we understand and respect.

And this game can then be played to either extreme.

All we are saying is keep it respectable, so the most can play with the littlest pain.

Private ownership of land is the foundation of our capitalist system.

And must be protected — through wide ownership and property rights.

Including the right not to be taxed off your own property because of either the

incompetence or arrogance to tax your home/property by the local government ( City Hall ).

Now with the advent of Current Value Assessment in the City of Toronto ( Province of Ontario)
inflated valuation – could create many ripples of future problems for both the City and the tax payer.

Keep it all in perspective , and keep it real. And if all the moving parts cooperate on a reasonable basis

nothing should get out of hand and no big mysterious consequences happen that no one saw coming.

Let’s discuss it , let a comment below

or Twitter :  EnvoyCapRealty

nyeretsian@yahoo.com   June 22, 2010