Crunch the Numbers, Or They May Crunch You
Frank Gallinelli is on a mission to get individuals investing in real estate to do more math. Not just for the sake of it but because some basic number crunching can make the difference between a good real-estate investment and a money pit.
While that may seem obvious, the longtime commercial real-estate investor, author and founder and president of RealData, an investment-software firm targeting individual investors, says too many novice investors flocking to real estate -- and even some experienced investors -- commonly forget this. One thing in particular they fail to do, he says, is to project the income stream of the property in which they plan to invest.
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Many individuals jumping on the real-estate investing bandwagon assume commercial property behaves the way single-family residential does. "Income property doesn't follow the residential model," Mr. Gallinelli says. "When you buy a home, you find that values tend to rise or fall across the whole community. If homes in that community are going up in value, you can usually rely on your home's value going up as well. That's not necessarily true with rental property."
With a rental property, he says, the investor buys not the physical property but the income stream or the cash flow. The value and profit potential of the property is a function of that income stream. "When you buy a rental property, you're buying an income stream," he says. "You're buying the cash flow that occurs year after year, and you're also buying the ultimate cash flow,...the proceeds of the sale, when you dispose of the property."
Once an individual discovers a commercial property he wants to buy, Mr. Gallinelli says, the individual should project the cash flows that will occur over time. The investor should look at the purchase price and the cost of financing; look at the rent and the extent to which he thinks he can increase that rent in the future; go over the operating expenses; assess the need for improvements to the property; and then estimate how much they could sell it for some time down the road, factoring in the value of the income stream.
DO THE MATH
Here are some data-gathering steps individual investors are urged to take before making an investment decision but, according to author Frank Gallinelli , too often don't.
? Ask to see the leases to verify the rents and expiration dates. That will help you project the potential revenue.
? Look at the property-tax bill to confirm the accuracy of this expense. Does the seller have a property tax-bill phase-in or an abatement you won't receive?
? Spot-check utility bills, not only to check their accuracy but also to get a sense of the seller's truthfulness.
? Ask to see the appropriate sections of the seller's tax return to verify expenses.
? Spell out the representations the seller makes about the leases and the schedule of rent income in writing in the offer to purchase.
? Find out what similar properties in the area are being rented for.
? Find out about local rates of return. What are other investors achieving?
Source: "What Every Real Estate Investor Needs to Know About Cash Flow … and 36 Other Key Financial Measures" by Frank Gallinelli .
"You need to know at what price does the return on the investment make economic sense," says Mr. Gallinelli, whose software conducts these calculations for investors. Mr. Gallinelli says the property seller or the seller's broker should provide income and expense information but that the investor still needs to verify that data. The income information, for example, can be verified by examining leases. He also recommends talking to actual tenants of the property if possible to confirm the terms of their leases, as well as checking with assessor's offices to see what the taxes are, checking with utility companies to verify the utility costs and checking with an insurer to verify the cost of insurance.
"You have to have a good sense of what kind of income you can derive from the property, what kind of operating expenses you are going to experience and what a future investor will pay you to buy this income stream," he says. "That's why it's so important not to think about a property appreciation rate as you do with your home. That future investor is not going to look at what you paid for the property five years ago or what you spent to improve it. The future investor will look at the income stream. Period."
Mr. Gallinelli says calculating the financing costs and the revenue stream will help an investor project his cash flow and ultimately his internal rate of return on investment. "The cash-flow calculation is the income minus your vacancy, operating expenses, financing costs and improvements," he says. "At the resale, you have one final cash-flow consideration -- the sale proceeds, which are the selling price less costs of sale and mortgage payoffs. You have to look at when cash flows occur and how big they will be. That will give you your source for the internal rate-of-return calculation."
The bottom line is that individuals need to put together financial models that calculate everything from present and potential income coming in to expenses and improvements. Lastly, individuals need to think prior to buying the property about what a potential future buyer would be willing to pay for the property based on its income stream.
投资出租房产者谨记
弗兰克?加利内利(Frank Gallinelli)的使命之一是让投资房地产的个人投资者多做一些算术题。这当然不是为算术而算术，而是因为通过一些基本演算，就能知道一项房地产投资是好是坏。
加利内利说，虽然这一点可能看起来很明显，但一哄而上的投资新手甚至一些有经验的投资者也常常忘记这一点。加利内利可谓身兼数“职”：商业地产长期投资者、作家、投资软件公司RealData的创始人和总裁。他说，他们尤其容易忽视的就是预测他们准备投资的房地产项目的收益流。
许多个人投资者头脑一热就跳进了商业地产投资大潮，以为商业地产和单户型住宅的规律没什么两样。“其实不一样”，加利内利说，“购买住宅时，你会发现房产价值和整个社区的房价是一同涨跌的。如果这个社区的住房升值，那么你的这套房子也会升值。但是，对出租性商业房产来说未必如此。”
他说，投资出租性房产时，投资者买入的并不是实物房产，而是房产的收入流或者说现金流。房产的价值和利润潜力就是收益流的功能。“买入一项出租房产时，你买入的是收入流，”他说，“你买入的是一座房产以后每年的现金流，还有最终的现金流...也就是处置房产时的收益。”
加利内利说，一旦个人投资者发现了一处想要投资的商业性地产，就应该预估一下这项投资的长期现金流。投资者应该考虑房产收购价、融资成本、租金，以及购买后想要提高租金的幅度，评估经营费用、必要的装修支出，然后再估算一下打算卖出时能得到的售价，这时应该考虑收益流的价值。
他说，“你要知道在什么价位这项投资的回报才有经济意义。”他创立的RealData公司专门编写这类帮助投资者计算投资回报的软件。他说，地产的卖方或者卖方的经纪人应该提供相关的收益和费用信息，但投资者仍然需要验证这些数据。比如说，收益数据可以通过查询出租信息来进行验证。他还建议，如有可能，投资者应该去找真正的租户，证实租约条款，还要向评估人办公室核实税收，向公用事业公司核实公用服务收费，向保险公司核实保费。
“你要有一个清醒的认识，对于投资这项房产能得到怎样的收益，将要付出的费用，以及下一位投资者愿意为购买这项收益流支出多高价钱等等，”加利内利说，“这也就是不要以为出租房产会和你自购的住宅一样一定会升值的原因。下一位投资者不会考虑你5年前为这项出租房产支付了什么价格，也不会考虑你为装修改善花了多少钱，他只会看这处房产能为他带来多少收益。”
他还告诫投资者，计算融资成本和收入流有助于估算现金流和最终的投资回报。“现金流就是用收入减去空置租金、营运费用、融资成本和装修后的所得。转售时要考虑最后的一次性现金流，也就是售价减去销售成本和抵押还款。你要考虑现金流何时开始流入，额度有多大。这些都能帮你准确计算投资回报。”
要点是投资者要把这些数据代入财务模型，计算从现在到潜在租金流入及各种费用支出等所有内容。最后，投资购买之前还要考虑下一位投资者愿意出多少钱接手。
