In Real Estate you need to know: How much Roast Beef can the Deli counter sell?
The answer to this question separates the truly successful real estate investor from the wanna-be’s and failures.
What is the Inflection point of rent? The successful owner needs to know how much rent to charge. You extract the maximum amount to the mutual benefit of both yourself and your tenant.
Knowing how much to charge rent is based on knowing what the renter can truly afford.
Hitting that number maximizes the rental income from the property. Too little and you as landlord leave money on the table (as well as value from capitalized NOI). Too high a rent and you risk hurting your tenant placing the long term value of that tenant in some degree of jeopardy, and therefore the property as well.
That is the essence of the calculus of the successful real estate investor. He or she intimately knows their property. That includes knowing the things that affect the property. Ask any successfully owner. He can tell you who are the tenants, what they do and who their customers are. He can talk about the neighborhood. Which properties are doing well, what sold and for how much, what new things are going on in the area. He knows all about the market in which his tenants will be doing business, the profit potential the business and therefore the right amount to charge for rent. In other words, the successful landlord knows how much roast beef the deli counter can sell.
What is the Inflection point of rent? The successful owner needs to know how much rent to charge. You extract the maximum amount to the mutual benefit of both yourself and your tenant.
Knowing how much to charge rent is based on knowing what the renter can truly afford.
Hitting that number maximizes the rental income from the property. Too little and you as landlord leave money on the table (as well as value from capitalized NOI). Too high a rent and you risk hurting your tenant placing the long term value of that tenant in some degree of jeopardy, and therefore the property as well.
That is the essence of the calculus of the successful real estate investor. He or she intimately knows their property. That includes knowing the things that affect the property. Ask any successfully owner. He can tell you who are the tenants, what they do and who their customers are. He can talk about the neighborhood. Which properties are doing well, what sold and for how much, what new things are going on in the area. He knows all about the market in which his tenants will be doing business, the profit potential the business and therefore the right amount to charge for rent. In other words, the successful landlord knows how much roast beef the deli counter can sell.
David Levin
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The President's Real Estate Plan
The President’s announced plan to assist homeowners in trouble is itself in trouble. Among the many criticisms are the small number of people the program will actually assist, the litigation potential of those investors cut out as a result of this program, and the cumbersome process required to determine eligibility. It is easy to criticize the plan; Any one government program is not capable of solving the current situation. In fact, in listening to the current conversation, we cannot even come to an agreement about the fundamentals. The biggest most basic question, “Who should be helped?” has not been adequately answered.
This plan, such as it is, is likely designed more to provide psychological support (albeit cumbersome and expensive and selective), showing that the government is aware of the problem and is “doing something”. This plan is probably meant to reassure the market, moving us from a state of despair to one where we can see the light at the end of the tunnel. Realistically however, even that goal is much more than this government program is capable of delivering. The market is a juggernaut. The excesses we gorged upon have to be unraveled; home prices and mortgage financing must get back in sync with the house owner’s ability to carry the costs associated with ownership of the property. We remain in the early stages of this market cycle and no government sponsored assistance program for a few on the margins will change that. Borrowers, Builders and Lenders all need to recognize this fact.
This plan, such as it is, is likely designed more to provide psychological support (albeit cumbersome and expensive and selective), showing that the government is aware of the problem and is “doing something”. This plan is probably meant to reassure the market, moving us from a state of despair to one where we can see the light at the end of the tunnel. Realistically however, even that goal is much more than this government program is capable of delivering. The market is a juggernaut. The excesses we gorged upon have to be unraveled; home prices and mortgage financing must get back in sync with the house owner’s ability to carry the costs associated with ownership of the property. We remain in the early stages of this market cycle and no government sponsored assistance program for a few on the margins will change that. Borrowers, Builders and Lenders all need to recognize this fact.
The Rational Consumer
The consumer has been acting rationally throughout the real estate cycle. Don’t expect that to change now.
While prices increased, consumers rushed to purchase homes. The concern was a trend in prices would continue to push the limits of affordability. Price increases would put homes out of reach, so the psychology was to buy now before that house was out of reach. Consumers clamored for increasingly creative mortgage financing as a means to accomplish this goal.
With prices declining consumers are holding off except in cases of immediate need or where they perceive real value through substantial discounts and incentives. The driving psychology is the underlying question: “Why buy today for $2 what will be available tomorrow for $1.50?”
Until an equilibrium, or balance, is achieved between supply and demand, the consumer will continue to respond to an over supply of inventory and increasingly desperate sellers by expecting and demanding substantial price reductions. In certain markets this portends a deflationary period. Builders with inventory have every incentive to sell now, as do those with only one house to sell. At this time in the cycle, the consumer will continue to act rationally based on the information at his disposal. The seller needs to do likewise.
While prices increased, consumers rushed to purchase homes. The concern was a trend in prices would continue to push the limits of affordability. Price increases would put homes out of reach, so the psychology was to buy now before that house was out of reach. Consumers clamored for increasingly creative mortgage financing as a means to accomplish this goal.
With prices declining consumers are holding off except in cases of immediate need or where they perceive real value through substantial discounts and incentives. The driving psychology is the underlying question: “Why buy today for $2 what will be available tomorrow for $1.50?”
Until an equilibrium, or balance, is achieved between supply and demand, the consumer will continue to respond to an over supply of inventory and increasingly desperate sellers by expecting and demanding substantial price reductions. In certain markets this portends a deflationary period. Builders with inventory have every incentive to sell now, as do those with only one house to sell. At this time in the cycle, the consumer will continue to act rationally based on the information at his disposal. The seller needs to do likewise.
Happy Thanksgiving
Just a quick note to wish all of our readers and subscribers a very Happy Thanksgiving.
We have much to be thankful for this year and we hope you do as well. Have a wonderful time wherever you may be. Try not to eat too much, or if you are like me, at least resolve to start exercising next week in order to work it off.
All the Best,
David
We have much to be thankful for this year and we hope you do as well. Have a wonderful time wherever you may be. Try not to eat too much, or if you are like me, at least resolve to start exercising next week in order to work it off.
All the Best,
David
Proposed Tax Reforms are not good for Florida
If you don’t know where you are or where you are going, you are lost. Unfortunately Lost seems to be an apt description of our legislature.
“Tax Reform” measures that has been passed onto the voters for their decision in January is bad policy and bad economics. It tinkers on the margins and panders to select constituencies while sacrificing others.
To play with the revenue side of the equation without careful consideration of the expenditure side makes for poor fiscal policy. For example, the substantial cuts to education offered to pay for the proposed tax relief for a few just sacrifices our children’s future and our state’s competitiveness.
The proposed preservation and doubling of Save our Homes along with portability essentially pits the long time residents (those with an equity build up in their properties) against a group including those that have bought homes over the past five years and non-residents. A 10% tax cap for businesses and second homes is meaningless in a market with declining values. These measures help the one group, but place a substantially higher burden to carry the state’s programs on groups that are vital to Florida’s future, essentially making our state a less attractive opportunity for them and dimming prospects for our growth.
A comprehensive approach to taxation and spending is the only reasonable way for Florida to continue to grow with a healthy and vibrant economy. Government spending has swelled over recent years as property related tax revenues have increased. We must decide what we want our governments to spend money on and then decide how we are going to equitably finance these programs and services. Playing to a special segment of the population only pits the one group against another. It does not further the overall best interests of our state or her residents. We need to demand better from our legislature and they need to rise to the occasion; our future is too important.
“Tax Reform” measures that has been passed onto the voters for their decision in January is bad policy and bad economics. It tinkers on the margins and panders to select constituencies while sacrificing others.
To play with the revenue side of the equation without careful consideration of the expenditure side makes for poor fiscal policy. For example, the substantial cuts to education offered to pay for the proposed tax relief for a few just sacrifices our children’s future and our state’s competitiveness.
The proposed preservation and doubling of Save our Homes along with portability essentially pits the long time residents (those with an equity build up in their properties) against a group including those that have bought homes over the past five years and non-residents. A 10% tax cap for businesses and second homes is meaningless in a market with declining values. These measures help the one group, but place a substantially higher burden to carry the state’s programs on groups that are vital to Florida’s future, essentially making our state a less attractive opportunity for them and dimming prospects for our growth.
A comprehensive approach to taxation and spending is the only reasonable way for Florida to continue to grow with a healthy and vibrant economy. Government spending has swelled over recent years as property related tax revenues have increased. We must decide what we want our governments to spend money on and then decide how we are going to equitably finance these programs and services. Playing to a special segment of the population only pits the one group against another. It does not further the overall best interests of our state or her residents. We need to demand better from our legislature and they need to rise to the occasion; our future is too important.
