Quotes from Steve Berges

Net operating income is derived as follows: Gross income ? total operating expenses = net operating income

To be truly successful, you must be willing to assume risk.

The One-Minute Assessment in Three Easy Steps 1. Divide gross income by 2; the result is an estimate of NOI. 2. Calculate the cap rate by dividing NOI by the asking price. 3. Determine whether the resulting cap rate is in line with the market.

Another good source is the Institute of Real Estate Management (IREM) . Each year it publishes a comprehensive book entitled Income and Expense Analysis: Conventional Apartments (Chicago: IREM/National Realtors Association), which provides data on more than 3,700 apartment buildings in over 150 different major metropolitan areas.

There are four crucial factors to consider: 1. The resources available to work with. 2. The size of the property. 3. The age of the property. 4. Your holding period.

Poor collection of rents may provide you with an opportunity to create value, but remember: the price you pay for the apartment complex should reflect the value of the property as it is currently operating, not what it would be if all of the rents were being collected. The value is created only after you have acquired the property and made the necessary changes to improve collections.

Three basic components must be considered when defining your objectives: your entry, postentry, and exit strategies.

Depending on the level of coverage your lender requires, you should be able to insure your property for about $100 per unit per year on average.

I prefer looking for properties that are more than 90 percent occupied and that just look a little rough from the outside due to poor management and neglect.

Do not let a broker attempt to convince you that the property is worth anything more than a multiple of its existing NOI.

Among the most important factors to consider when determining your optimum holding period are the tax implications and how they will impact your bottom line.

Six Ways to Locate Properties 1. Real estate brokers. 2. Classified advertisements. 3. Industry-specific real estate publications. 4. Local and national Web sites. 5. Associations and real estate investment clubs. 6. Banks.

Single-family property appraisals are largely based on comparable sales, while multifamily property valuations are driven primarily by income.

Five ratios are required in multifamily property analysis: • The capitalization rate • The cash return on investment • The total return on investment • The debt service coverage ratio • The gross rent multiplier