BY CHUCK WEST, CCIM AUTHOR AND EDITOR
Forever West MAY 2021 HYPOTHETICAL VALUATION PROBLEM UTILIZING CAPITALIZATION APPROACH TO VALUE A 6-PLEX IN CHEYENNE WY An owner of a 6-plex desires to sell his building that he has owned for 10 years and has pampered it by doing much of the work using “sweat equity” and becoming “friends” with his tenants. He thinks his unit is better than other similar apartments and therefore “deserves” a lower cap rate of 5% than his broker’s recommendation of an 6% market rate for Cheyenne. He has not had a vacancy for 2 years and is 100% occupied. Built 1984. Tenants pay electric & gas. 2 - 2BR/1BA unfurnished units all appliances 6-mo leases $800/mo. 1 - 2BR/1BA unit rented to owner’s girlfriend - verbal lease $500/mo. 1 - 2BR/1BA unfurnished unit with bad carpet rented for $500/mo. 1 - 3BR/2BA unit on a 2year lease $800/mo. 1 - 3BR/2BA unit mo. to mo. $1000/mo. Late Fees and Forfeited security deposits $200/mo.
follow me on twitter @cwestucla WHY DO I NEED TITLE INSURANCE WHEN A WARRANTY DEED IS GIVEN BY THE SELLER?
Title Insurance can help ensure that title defects will not make a property un-saleable in the future because of: 1. Forged Documents 2. Undisclosed heirs to the property 3. Mistaken legal interpretations in wills 4. Misfiled documents at the county 5. Confusion due to similarities in names 6. Incorrect marital status 7. Mental incompetence of the grantor 8. Discrepancies in parcel boundaries (which may require a survey), covenants (that maybe violated by actual inspection of the property). The title company will show the recorded covenants but will not ensure that they have not been violated. This is the buyer’s duty. Maybe more practically speaking can you afford to sue the seller?
FEATURED PROPERTY
Owners annual income $55,200 Vacancy and credit loss 0 Owners 2020 collected income as reported to IRS $55,200 Property tax 2020 $2,700 Insurance $1,000 Water and Sewer and trash $12,000 Snow removal/landscaping $1,200 Maintenance $1,500 Total operating Expense $18,400 Owners reported NOI $36,800 Owners expected sales price at a 5% cap rate
$736,000
1. If all two bedrooms are the same floor plan should they all be treated as the same value? 2. Should misc. income that is variable be counted in a NOI analysis? 3. What is a proper vacancy factor? Actual? Market? Other? 4. What are the problems you face as a seller from a sophisticated buyer? 5. Since the owner is achieving this NOI today why might the above analysis be wrong? 6. How will an appraiser adjust this economic analysis for an appraisal for a new buyer/lender? 7. What expenses are missing in this analysis? 8. What other issue might arise from this verbal lease in place? 9. Should replacement reserves be counted as an “operating expense?” 10. Investment Brokers analysis APOD Form will show the correct analysis in the June issue. Chuck West of #1 Properties was awarded the Certified Commercial Investment Member (CCIM) designation #897 in 1978 by the CCIM Institute, one of the leading commercial real estate associations in the world. More than 15,000 commercial real estate professionals have earned the CCIM designation requiring a rigorous combination of coursework and experience since the program was founded in 1969. Chuck is a licensed real estate attorney in CA since 1983 and broker in CA and WY, and has been involved in commercial real estate for over 30 years in private practice, as a corporate executive in charge of 10 million square feet of commercial properties on a national basis and as Director of Real Estate for two large counties handling 14 Million square feet of leased space and 50 million square feet of government owned space.
#1 Properties has closed 658 sales in 2021 YTD with a total volume of $229,909,743
05.11.21
LEGAL CORNER
3151 NATIONWAY, UNIT A1 & A2 | CHEYENNE, WY Prime retail space for lease. CAM only $1/sf/year and lease includes utilities in rent. Lease rate under $9/sf/yr. dependent on term and credit of tenant. 5500-13,000sf
2021 STATE BUSINESS TAX CLIMATE INDEX The Tax Foundation, an independent research group, publishes a list annually comparing the tax burdens in each state. See taxfoundation.org. While there are many ways to show how much tax is collected by state governments, the Index is designed to show how well states structure their tax systems and provide a road map for improvement. The 5 best states in this year’s index are: 1. Wyoming 2. South Dakota 3. Alaska 4. Florida 5. Montana.
The 5 worst states or lowest ranked are 50. New Jersey 49. California 48. New York 47. Connecticut 46. Minnesota.
These states have several afflictions in common: complex, non-neutral taxes with comparatively high rates.
“When the government fears the people, there is liberty. When the people fear the government, there is tyranny.” -Thomas Jefferson
This newsletter is not intended to solicit another Realtor’s Listing. This Realtor complies with the National Association of Realtors Code of Ethics. Email me to unsubscribe or obtain back issues of this newsletter at chuck@cheyennehomes.com.