Why Invest in Real Estate Presented by: Tony A Drost, MPM®, RMP®

What We’ll Learn Understand how and why investing in real estate can be beneficial How to SELL the benefits of a good professional property manager See that WE personally can get the greatest return of any investor – Don’t tell anyone – this is our secret

Too Good To Be True? Initial Investment$3, Yields$44,067

Who are our Clients

Definitions CAPITALIZATION RATE: Is the ratio between the purchase price and the Net Operating Income (NOI) Cap rates are market specific and can vary from area to area as well as building type The higher the cap rate the better the performance

Definitions CASH-ON-CASH RETURN: Compares the initial investment to the annual cash flow. This does not take into account tax savings and increase in equity Simplified: If you put $10,000 in the bank, the cash-on-cash return is the interest rate you make Savvy investors use cash-on-cash return as it is a more conservative approach

Definitions INTERNAL RATE OF RETURN: An estimation of the future stream of cash flow including the net proceeds from the sale against your initial investment Sometimes referred as: – Yield – Return – Rate of Return – Return on Investment (ROI)

The Power of Leverage SECURITIES INVESTMENT Initial investment $14,875 Rate8% Net return (10 years)$19, – Before taxes

The Power of Leverage REAL ESTATE INVESTMENT Initial investment $14,875 Net return (10 years)$92,521 Cash Flow (year 1-10) + Net sales proceeds Rate of return24.73% – Before taxes

Why the Difference Securities investment – Return is based on initial cash investment $14,875 Real estate investment – Return is based on appreciation of the value of the entire asset plus cash flow $125,000 plus cash flow

Leverage – See the Difference Initial InvestmentReturn (Down Payment) 10% 24.73% 25 % 50% 75% 100% 16.64% 12.06% 10.5% 8.9%

Leverage = Risk The greater the risk, the greater the return Leverage improves CASH PERFORMANCE Hedge your investments with CASH RESERVES

Accidental Landlord – Upside Down Please turn to back of handout to find the Case Study Assumption Page Case Study Assumptions

Accidental Landlord And How We Can Help Rent covers mortgage payment Places a caretaker Assuming a 10-year holding period – Owner had $17,500 in tax savings – Owner now has equity Principle reduced by $25,000 Value improved by $43,000 Accidental Landlord.xls

True Investor - And How We Make Their Investment Perform Investor Analysis.xls

Why We Make the Best Investors Assumes 25% owner Commission on Purchase$3,750 – $125,000 X 3% Contribution (25%)$ 25% Cash Flow – 10 years$6,385 Commission on Sale$5,040 – $168,000 X 3% Proceeds of Sale – 25%$13,382 PM Fees – 10 years$18,635 Net Proceeds$44,067

Why Partnerships Can Be Good Perfect client – because I am in control Upon Sale, partners tend to exchange into replacement properties individually Allows you to participate in an investment opportunity with little to NO money Builds upon your own portfolio

Summary Financial analysis is technical Templates are available Merging your own data and spreadsheets is the best way to fully understand the performance measures