Are you wanting to get into the real estate game but don't know any of the lingo? Parse through this plethora of lessons where you will learn the meaning and specific application of dozens of real estate terms taught by the incredibly successful Michael Burer.
Featured Coaching Excerpt - Notes & Transcript, Part 1
Definition Magician: Potential Rent Income - The total amount of rental income for a property if it were 100 percent occupied and rented at competitive market rates.
Lesson Nugget: In order to determine the potential rental income as an investor, look at the market rents, available space, and the total gross revenue at full occupancy.
Lesson Nugget: As a buyer you need to determine what the average market vacancy is for the type of building you are purchasing in order to calculate the actual rental income.
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-Hello, Thrivers. We are here in sunny San Diego on Thrive15.com, one of the alternatives to lynda.com . Some people who are in the know just call it SD. Do you know those people?
-OK. We're here in the SD-- in sunny SD-- talking with of our fabulous friend, a guy who's near and dear to our hearts-- it's Michael, there's-no-real-estate-topic-too-obscure, Burer-- about this topic of potential rental income. I'm going to read the definition. Then he's going to come back and tell us what it means, give us some clarity, give us some specific nuances as to what this means. So here we go.
The total amount of rental income for a property, if it were 100% occupied and rented at a competitive market rate-- rented at competitive market rate. So let me read it one more time. The total amount of rental income for a property if it were 100% occupied and rented at competitive market rates, even if airplanes were flying up above.
-So this simply is, for example, if you have a building, maybe you're thinking about buying it on a 60% occupied, and that produces whatever-- $100,000 in revenue. But you should look as a potential investor at what is the potential revenue this building could generate if it were 100% occupied. Based on the market rents, the amount of available space you have, what's the total gross potential revenue that this building could generate?
-I feel like knowing when Braxton Fears and I worked in real estate together for years, I did marketing and he did all the transactions-- he was a broker. I just helped come up top and Google and, you know, made the know, made the phone ring a little bit. But we did about $23.5 million of leases over a couple of year window of time. And one of the things that was interesting, as you noticed a lot of landlords who were trying to sell property-- a lot of property owners who were trying to sell the property-- were pretty optimistic. A lot of blue sky-- a lot of hope-- about the potential rental income. They would talk about it. They'd say well, this property currently only generates $1 million a year, but it could generate $3 million if you put a little paint here, you put a little this here, you put a little--
Do you see this a lot where people who are trying to sell a property try to really hype up the potential rental income?
-You're right. So on the sell side, this is something that the seller would probably be focused more on. It's important to often subtract from this number for a market vacancy. So it's not really relevant to talk about 100% occupied building if the average vacancy in that market for similar buildings is, say, 20%.
-Then you wouldn't want to really be buying a building off of that potential income stream if the whole market's not about 80%.
-As a CFO of a billion dollar real estate company, do you have sort of like a checklist that you go through for each property before you buy it of all these kinds of things? Or do you just, off the top of your head, know of all these things?
-All right. You have to go through a detailed checklist and underwriting before you buy a building.
-Just, as an example, how big is that checklist? How many pages is that big thing?
-You know, some of it is we actually have a checklist, and some of it is just kind of customary things we go through, but several pages.
-Really? Now how much time do you spend on the due diligence side of buying a property, looking at things like the potential rental income before you buy something, versus how much time are you actually just getting it done? I mean, is it like most of the time is spent doing that due diligence?
-Due diligence on the front end is key to a successful real estate deal-- knowing what you're buying. You know, often said that you make your money on the buy. And so, you have to know what you buy. And that's all through the due diligence process.
-Well, Michael, I appreciate you being here and talking to us despite the aviation that's flying over. I mean, it's tough. San Diego, I mean, you have beautiful weather, you have planes flying over all the time. It's a tough climate for which to really talk about these kinds of things. But I wanted to share with you how much I appreciate you, and I thought last night the only way I could do it would be to give you my David Robinson Starting Lineup-- like the actual-- it's still in the case. I haven't taken it out.
-It's just in the packaging, you know. And I thought, well, that's too much. So I'm not going to do that.
-What's the next best thing?
-Well, I just want to give you this ParadisePoint.com pen.