ONEprop Blog

Press Release: Prime Properties is now ONEprop

noreply@blogger.com (Kevin Martin) — Mon, 21 Sep 2009 23:51:00 +0000

Prime Properties is now ONEprop

Dallas-based Prime Properties is rebranding and changing their name to ONEprop to convey the message that they’re the ONE place to go for management needs.

Dallas, TX – September 18, 2009 – Prime Properties, the Southwest’s largest residential property management company has announced that they’re changing their name to ONEprop.

“Prime Properties has built its solid foundation on successfully managing single family homes,” said CEO David Kadleck. “We’re much more than that over 20 years later. We’re leasing, marketing, management, and accounting. We’re involved in asset management, multi-family, sales and investor advisement. We’re more than “Prime Properties”. We’re one stop, one source for all management needs. ONEprop fit our company.”

ONEprop will launch the new brand in Austin this fall and expand company-wide by the start of 2010.

“We’ve expanded our business to become better-rounded in 2009,” said Mike Bush of the Business Development department. “While we still pride ourselves in offering the best service in the single family market, our valued clients kept pushing for us to manage more for them to help them keep their investments in-line with our standards and practices.”

Building strategic alliances and partnerships with vendors, asset managers, and gaining valuable insight into the clients’ “wish-list” was the inspiration for the name change. “We needed to let our clients, their tenants and our future clients know that they’re not going to need 10 different vendors to help them achieve a sense of ease while owning rental properties. Our team approach to management ensures that all aspects are handled in one place, hence ONEprop,” said Kevin Martin, COO of ONEprop. “It’s been a long time coming.”

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ONEprop is a Dallas-based property management company with locations in 6 Southwest Metro locations: DFW, Austin, Phoenix, Tulsa, Oklahoma City, and Baton Rouge/Lafayette. ONEprop has been in business since 1986, and employs a staff of Realtors® and corporate professionals extensive industry experience. With over $3 million in rent processed each month, ONEprop leads the single family residential industry.

Contact: Layla Bush (214) 432-1967 or lbush@primeprop.com

http://www.oneprop.net/

Where will they live? What will it cost to live there?

noreply@blogger.com (Kevin Martin) — Thu, 23 Apr 2009 14:20:00 +0000

Based on current census bureau statistics, there is a large immigration going on. People are moving to Texas! Dallas, Houston, San Antonio and Austin are continuing to add population at high levels. How does this impact changes in rents and real estate pricing in the current economic strife?

Everyone has been feeling the impact of the bubble which burst, a bubble created by cheap credit and real estate speculation. Everyone seems to have forgotten the traditional measures which control economic drivers, the actual supply and demand of real houses and people to live in them. The question I kept asking myself was why did the price of real estate go up 20% per year in Phoenix when there was no shortage in the supply of houses? These valuation increases, the types of which are normally created by scarcity, made no sense as they were filling homes as fast as they could build them.

The supply and demand issue which created the housing bubble was the supply of easy credit and the demand to leverage this credit into accumulation of the physical asset of real estate. This equation ignored the actual use of the improved land to support the needs of the population for housing and the additional supporting commercial uses of office space for jobs and the retail space to support shopping.

Remember, this forum is a "blog", a place where someone writes their thoughts and opinions. Read the legal disclaimer at the bottom before taking any actions based on my opinions which I am about to express.

To look beyond the current crisis and see the other side; let’s get back to basics. The basics include, where are people choosing to live and where will the jobs be which can support an expanding economy. The facts are that there are specific areas of the country which have a current oversupply of housing and other areas which have an adequate supply or may actually be looking at an impending shortage. The oversupply exists for one of two reasons; either the area was overbuilt in anticipation of greater population growth then actual, or the areas suffered from a loss of population and jobs.

The Sun Belt real estate crash resulted from overbuilding and today there is too much housing. These areas include Phoenix, Las Vegas, Southern Florida and the inland valleys of California. The crash would not be as severe if the population and job growth had developed at the hyper levels required to sustain the rate of new home construction which existed from 2002-2007. You cannot blame the whole crash on easy credit. Part of the reason for the crash is the people who were loaning money to builders failed to properly forecast consumption.

There are now houses in these overbuilt areas which can be purchased for less than the cost to build a new home. These can be a bargain and should be purchased if you can find a use for the house. This means you have to live in the house to make it productive or you must be able to place a paying tenant in the home to offset the acquisition costs. People still move into these areas, so if and when jobs are created, this is where you might want to own real estate.

There are areas of the country where the oversupply has been created by emigration as people move out of the area. Small towns throughout the country have long experienced a stagnant real estate market as the young people grow up and move away to the bigger cities. The situation in many cities in Rust Belt states is uniquely severe, not only do the people leave, but the jobs leave as well. Detroit is the textbook example. This area, once the fourth largest in the country, is now only number eleven in large part because of emigration. The diminishing status is not just because Dallas area has grown to be the new number four, but Detroit has shrunk to half its largest population. There are houses in Detroit which burned during the riots of 1967 and were never torn down because the land was never needed for anything else. The price of houses in Detroit are far below what it would cost to rebuild, but there is no light at the end of the tunnel because there is no projected need for significant additional housing. Phoenix is expected to recover, adding jobs and people in the future, and at some point the housing market should reach a situation where all existing stock is absorbed and a demand is created for new construction.

Texas is the current shining light in this economic downturn. I would call it a dim light, but it beats the black gloom hanging over Las Vegas and Southern Florida. The immigration into Texas cities continues to be strong and the need for additional housing stock still exists. The housing need is being met, so far, by a greater number of apartment complexes being built. There has been minimal job loss in the major metro areas, and Austin has experienced a net job gain over each of the past two months. There have been layoffs in Dallas, but there continue to be new job opportunities to replace the lost jobs. These new Dallas area jobs are usually at the expense of other parts of the country as employers continue to move jobs to Texas.

The inventory of resale homes in DFW is currently at 5.5 months, well within the normal range of 3-6 months. The issue people are failing to consider is that Dallas usually has a 3-6 month inventory and at the same time there are a large number of new homes under construction. The second piece of this equation, new homes, is largely missing. When this recession ends the need for housing will expand and it will take quite a while for builders to re-engage their construction teams and get new homes rolling out to the public. The cost of new construction is anticipated to be higher, since much of the economy of scale will be lost as new projects are started on a smaller scale than in the past.

I predict Dallas is sitting on a potential shortage of housing once the economy (and job growth) recovers. We see some of this shortage in the rising rents and lower vacancy in the DFW area. Phoenix, on the other hand, will be able to handle expanding immigration and a recovering economy for a couple of years without asking its new home builders to get ramped up. The same house (similar age, configuration, neighborhood demographics) which receives $800/month in Phoenix is receiving $1,200/month in Dallas and $1,300/month in Austin. The price difference in rents is created by the traditional forces of supply and demand for housing.In order to see price appreciation in residential real estate we are waiting for two things to happen 1) the restarting of job growth and 2) the ability of banks to once again lend money for real estate. When these things happen there will eventually be a shortage on the supply side, which will first appear in Texas, then later in the other areas which add population and jobs. This shortage will drive up the value of real estate over today’s prices which will mimic the shortage there currently exists in our markets for single family rentals.

There is no telling what will be required to make the fuller economy recover, but until then the market forces of increasing population in some markets and tight credit are forcing more people to be renters and it continues to make this a good market to be a landlord in Texas. Texas is also where I first expect upward price pressure for real estate valuations. I never expected Texas real estate to increase in value at the 10/20/30% per year which other markets experienced in the bubble years, but that is not what I am look for. Because my real estate is leveraged, all I need for good return, with my rent/value ratios, is 3% increase in value per year and I get an excellent return with 4-5% per year.

Read more from other prognosticators at these links:

http://www.builderonline.com/local-markets/first-housing-markets-to-recover.aspx

http://www.builderonline.com/local-markets/the-healthiest-housing-markets-for-2009.aspx

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When Do I Raise Rents? (The 2% Rule)

noreply@blogger.com (Kevin Martin) — Tue, 31 Mar 2009 15:23:00 +0000

The quick answer to the question "When do I raise rents?" is that this should be done whenever the market allows. If you have a tenant in your house, it is now an investment and you should treat this like all investments, trying to achieve the best return at the lowest cost. There are two components to investment performance which must be managed, income and expense.

Right now about 20% of our clients are refusing our recommendations to raise rents. I don't understand how an owner will easily turn down $300.00/year in additional income, then anguish and get upset over a $100.00 repair. I have often said home ownership creates emotional decisions when the decisions should be financial, please try to avoid this trap.

So, how do you know if the market will allow? Ask us! We are experts in determining the correct amount of rent to ask when a tenant first moves in and also in determining the amount of rent you can increase at the time of the expiration of the initial lease period. We want your asset to have the best overall performance, it will cause you to continue to use us as your investment manager. We also want you to make enough money from rent so you agree when we recommend appropriate maintenance and upgrade expenses.

I will not reveal all of our secrets on how we make the determination of how much to increase the rent, but part of the equation is the "cost of the pain to move". If you have a tenant already living in a home, and the tenant can get the exact same home for the same price right down the street then you can increase the rent. A tenant will almost never move over a $25.00/month increase.You can then use this $300.00 extra per year to provide a higher level of maintenance, increasing your value in the home and providing a better product for the tenant. A variable measure/rule to use for rent increase at renewal is 2% of the rent. In my last post I talked about the 1% rule (annual maintenance costs compared to the value of the home), so let's call this the "2% rule" - always raise the rent 2% at renewal.

One of the things I often do after a rent increase is send the tenant a thank you note with a gift certificate, which the tenant can use in whatever manner they see fit. If you want this done, just ask your property manager, they will send a gift card to your tenant with a personal note. I usually send a $50.00 gift card when I do this.

I also use the additional rent funds to send an HVAC specialist to perform a system maintenance which will keep the system in better repair, and reduce energy consumption for the tenant. This is a win/win situation, the tenant benefits from lower energy costs and the HVAC unit's life is extended, lowering my overall costs. Your tenant will appreciate this care you provide for the home and remember this when it comes time to renew their lease.

So when we suggest you raise the rent, follow our expert advice. Then you have a choice, you can spend the extra money on yourself, enjoying the fruits of your investment, or you can reinvest, either into this home or any other investments you may have. But, never turn us down when we recommend a rent increase, this is money you can never get back.

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The 1% Solution - Maintenance Costs on Single Family Rental Properties

noreply@blogger.com (Kevin Martin) — Tue, 10 Mar 2009 16:15:00 +0000

If you have a single family investment property you need to consider the "1% rule". If a property is less then ten years old you should set aside about 1% of the value of the home each year for ongoing maintenance and repair expenses. You may go 1, 2, or 3 years with no more than $200-$300 in minor repairs, but you will eventually get hit with some larger repair costs. Go to this link How Long Does a Dishwasher Last? If you read the document at this link you will know what to expect going forward.

If your property is more than twenty years old you may have additional costs since you may need to update the property in order to keep the home up to date from a marketing standpoint.

What can you do to reduce your maintenance expenses? The number one thing which impacts maintenance costs is tenant turnover. The current change in the economy is a favorable trend for our clients. Tenants are staying longer and taking better care of the homes they rent. Higher tenant turnover = higher maintenance costs. This is primarily because more minor maintenance expense is uncovered/created when a new tenant moves in. If you have had a few tenant turns in your rental property you have found that the new tenant tends to uncover a group of small maintenance items which the old tenant lived with.

Frequent tenant turnover can have the most significant impact, but it is not the only factor to be considered. A poor tenant must be replaced as the costs of maintaining a poor tenant will be higher (over time) than costs associated with replacing them. The replacement costs of a poor tenant can only be deferred and the sooner you get the new tenant in the better off you will be. Remember, there are exceptions to every rule and in this business there are more than the usual number of exceptions. If your property manager is recommending you leave a poor tenant in the house, there is probably a good reason, so feel free to ask.

The other issue associated with more frequent tenant turns is that "normal" wear and tear is usually higher for carpet and paint. Different tenants use a house differently, so if you have four sets of tenants over a ten year period you will have higher "normal" wear. A judge explained to me that his definition of normal wear (and what we use as a measure) is based on the question of "what is the intended use" of the item. Although it may be normal for a dog to chew on a door (puppies tend to do this), the intended use of a door is to provide access from one space to a next, so damage caused by the dog is not normal wear and tear. It may be normal for children to run their dirty hands along the wall, but the intended use of a wall is to provide separation between spaces, protection from the elements and a place to hang photo's, so the grease on the paint from the children is not normal wear and tear.

One thing you can do as a landlord is to not accept marginal tenants. Unfortunately you cannot tell who will be a good tenant and who will bad until after they move in. In spite of our best attempts to provide a complete background check you can't tell how they will really behave until after they move in. If you have a tenant who is continually late paying their rent they are also, as a general rule, not taking care of the house

I define a good tenant in very simple terms, 1) they pay their rent, in full and on time 2) they keep the house and yard clean and in accordance with their lease and 3) they report any problems. When we had higher vacancies rates in 2004-2006 I was happy if I got two out of the three things. I now expect better compliance. If there is a tenant who is not conforming we will replace them. Over 90% of the tenants are good tenants, with the remaining 10% failing on one of the three basic criteria. The most important measure is item #1, if they are failing on rent payment it is a good indicator there will be other issues. If a tenant fails on timely payment of their rent and other financial obligations we are moving quickly and aggressively to replace them with new tenants.

Returning to my original thought, maintenance. The proper tenant can have a significant impact on your ability to keep your maintenance costs within the 1% range and the most important indicator of a tenant being responsible is if they get rent in on time and in full. The next thing we do is to educate the tenant on how to maintain the property in a manner which keeps your costs low. We explain to tenants they do have an obligation to report all problems, but if they participate in helping keep costs low it encourages their landlords to keep their rent reasonable. Tenants participate by unclogging drains, resetting disposals and replacing/repairing minor items under our guidance. Most people can replace a toilet seat with nothing more than a screwdriver.

One of the other methods to reduce repair costs is to combine repair items. If a home has a minor, non-urgent, repair, we encourage the tenant to save this item on list for later. If we have a more urgent repair in the future we may be able to add the minor repairs onto the punch list and provide a very cost effective solution for tenant and landlord. The largest cost of many repair is the cost to put a repair person on site. It may be $75.00 for the first repair item, but we may be able to get another three items completed at a small additional cost.

In the end, with all of this effort the goal is still to keep maintenance/repair/replacement costs at or below 1% of the value of the home/year over time. This includes annual service to HVAC and yard, new carpet every 7 years (on average), a new AC unit every 10 years, fresh paint every 7-10 years, a disposer here and there and a new roof every 20.

There are other options to a strategy of proper maintenance of a home, including doing absolutely nothing unless required by law and letting a property deteriorate. A financial case can be made for this alternate method, but if you plan on selling the property in the future for anything other than a tear down the financial rewards do not appear to work any better. Even if you plan on selling the property as a tear down you can be well served by providing proper maintenance as you will tend to attract more responsible, better paying tenants to your home, which reduces tenant turnover and leading to a lower overall cost of ownership.

I hope this provides a better understanding of what to expect as a landlord and how we focus our efforts to minimize this specific expense area of being a landlord. Before you finish this thought, I want you to take this idea and think about how it impacts our recommendation that investors try to keep their invetments focused on the $100,000 to $250,000 price point for the homes they purchase. More expensive homes have more expensive repairs, two and three HVAC units and water heaters, upgraded materials, etc. Think about it and you will begin to see the advantages of the sweet middle range!

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Multiple Offers in this Real Estate Market?

noreply@blogger.com (Kevin Martin) — Sun, 08 Mar 2009 19:19:00 +0000

Yes, it is happening - multiple offers are here once again, but the offers are for the opportunity to rent a single family home, not to buy. Do not listen to the "experts" who appear on the Today show telling tenants now is the time for hardball negotiations with landlords. It may be true in some markets, but in other markets the exact opposite is true. Make sure you know your market before you start throwing your weight around.

At Prime Properties our role is to represent the Landlord in these transactions and our legal obligation is to assist in getting them the best possible result from the performance of a rental property. All tenants need to consider there are now many people looking to rent rather then to buy, so when they submit an application to a landlord they need to put their best foot forward at all times. Submit a complete application, and if there is any issue which is deficient you should also submit a letter of explanation. Consider if there could be other offers, so if you have found the home you want to rent, you may want to offer additional security, strong references, or higher rent then the asking price. Offering a price of $10-$20 more then the asking price indicates you are interested in the home and that it is important to you. A landlord would look favorably on a prospective tenant who cares enough for a home to offer a little extra money to be sure they get the home.

Do not offer to provide information which could be used in a legally discriminatory manner. This could place your Realtor in an awkward position and what you may feel is in your favor may actually work against you. The best plan is to stick to the facts as they are requested on your rental application. Please note, lying on your application may make your lease void and you may be evicted, so do not lie! Work with a Realtor and follow their guidance as they are trained in how to best position your application. Also, if you are looking at a rental home represented by a Realtor you have someone involved with an obligation to see all are treated fairly.

Here is the catch, until a lease is signed by all parties we present all applications and offers to the landlord. This is not a secret, it is a license requirement and an ethical obligation as a Realtor. So, 1) make your best offer, 2) be honest and complete all requested information and 3) work with a Realtor!

Kevin Martin
COO/REALTOR
Prime Properties - We do it better!
KMartin@PrimeProp.com
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Prime Properties Scheduled to Open in Phoenix on April 1!

noreply@blogger.com (Kevin Martin) — Sat, 28 Feb 2009 01:28:00 +0000

Update on Phoenix:

For the past year we have been putting the pieces in place and we are now scheduled to open our Phoenix office on April 1. We are anxious to get going in this new market as it presents many opportunities and challenges, especially in the current real estate climate. We were asked by many of our current clients to assist them with their Phoenix investments, but the process of starting from scratch in Arizona proved to be more lengthy then when we crossed state lines and expanded into Louisiana and Oklahoma. Thanks for your patience while we have diligently worked to get this going.

The last step before we open is an interview with the Arizona Department of Real Estate (ADRE) so we can finalize the process and activate our brokerage license. In addition to the red tape issues to overcome we have been working with local Realtors and NARPM members for over a year to better understand the Phoenix market. This task has been like trying to read the labels on a NASCAR racer right in front of your face at 200 mph. The Phoenix market has had one of the most severe years as it has come to grips with the extraordinary overbuilding and the collapse of the job growth. Certain micro-markets in Phoenix have gone from good to bad over the past year and many of these bad markets do not yet show any light at the end of the tunnel.

The good news is it appears the Phoenix price adjustments are enough to again make rent/value ratios attractive for investors who want to enter the market. The balancing fear is the lack of new jobs means your rental home could sit vacant for an extended period of time due to oversupply. Please do your research before buying! A vacant house will kill the ROI on any investment since the rent/value equation only matters if you actually have a paying tenant in the home. We are concerned there could be a lack of tenants at any price point in certain neighborhoods so you should re-renter the Phoenix market with caution. Explore Phoenix opportunities and be prepared to act on the proper situation, but please use caution.

Our experience with the oversupply in Dallas from 2003-2006 provides us with a unique set of tools to deal with the extreme vacancies now seen in Phoenix. Back in 2004 we struggled in DFW and came up with many creative solutions to solve the problem of marketing into an oversupply. This was going on at the same time as Phoenix was shooting off the charts and everyone was making money there without even trying. We are poised to tackle Phoenix with the same fervor and skills with which we conquered the DFW challenges, however, since the Phoenix market is more depressed then DFW was at it's worse you should re-enter Phoenix with caution.

If you have properties in Phoenix you would like us to manage or you know of someone who does, please contact Jamie Hampshire in Dallas (JHampshire@PrimeProp.com) and she will collect your information and get your paperwork ready so we can start taking care of you as soon as we can officially open our doors.

Update on Our Other Markets:

In the markets where we already serve clients, the vacancy rates are still at all time lows. Baton Rouge now has a less then 5% vacancy rate for the homes we manage. So, if you are a client and we suggest you raise rents, please follow our recommendations. Early on in this business I was told "Nobody ever moved over $20.00", and though you may be tempted to skip a small increase when we recommend it, please take the extra $240.00 for the next year. There are up years and down years, and it is important to take the up years when they are here.

Remember that Dallas, Tulsa, Oklahoma City and Austin were not hit by the frenzy of overbuilding that happened in California, Arizona and Florida. What you currently experience in those frenzy markets is not what is happening in our other markets. Our current inventory of unsold homes on market are within historical norms of a 3-6 month supply. Our markets significantly curtailed building two years ago. This was in spite of the fact that the DFW area added a net of over 90,000 jobs in 2008 so these two issues created a scarcity of nice rental homes as compared with the demand. Also, if you have any deferred maintenance, do it now when times are good, take advantage of the cash flow which is available.

Last item, after over 20 years in business we have adopted an official slogan for Prime Properties. Our new slogan, "We do it better!", encapsulates what we have always focused on. "We" means we are a team of experts working for you, the "it" is whatever we do and "better" is measured not only against our competitors, but also against how we did our job the years past and individual landlords who manage their own homes. We constantly review and revise our processes in order to be the best at whatever we do.

Thanks to all of our clients who have trusted us over the years, and if you ever feel we fail in our efforts to do things better please bring the issues directly to my attention.

Kevin Martin
KMartin@PrimeProp.com
Prime Properties - We do it better!

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Revised Fannie Mae Regulations Good for Investors

noreply@blogger.com (Kevin Martin) — Wed, 18 Feb 2009 22:15:00 +0000

I just met with my mortgage specialist and he explained that Fannie Mae regulations have been revised to allow lower cost/conforming loans be made more available to qualified investors. This is good news for investors who want to take advantage of the soft sales market to add to their portfolio while housing prices are soft, mortgage rates are low and rents are still creeping up. Housing prices are soft, especially in the price point where we recommend investors buy, mortgage rates are low if you qualify for a conforming loan and we continue to push rents up as vacancy rates drop to a ten year low.

The problem for investors was the government would not allow conforming loans to investors who already had four houses. Sometime this included your primary residence meaning your carrying costs went up significantly if you had three or four investment properties and wanted to add additional investments. Now you can get a conforming loan with a 5%-6% interest rate for up to ten homes. The new criteria includes that the investor must include a 20%-25% down payment. Investors must now re-orient so they should be looking for a strong cash flow instead of hyper leverage. Please call us to assist you in locating a proper investment property. If you can put 20%-25% down on a $140,000 home we will look to place you in a home which will return 5%-10% each year on your down payment over a ten year period. This return is before the impact of appreciation or the principal retirement as your tenant pays the bills. Buy the house now, get cash flow now and cash out at the end of 15 years to realize the benefit of any appreciation and retirement of principal. Once you add the benefits of appreciation and retirement of principal you should be looking to receive a 10%-20% annualized return on your initial investment.

So, if you own less then 10 investment homes you should be looking to take advantage of this current opportunity. Let us know you are interested and we will assign an investor specialist to work with you. We will locate the house which is vetted with an eye towards performance as a rental property and provide funding resources who specialize closing loans for investors.

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Job Loss Hits Texas

noreply@blogger.com (Kevin Martin) — Sat, 07 Feb 2009 22:12:00 +0000

The government just released December numbers and it is official, we are losing jobs in major Texas markets faster then we are adding them. DFW had 12,600 fewer employed persons than the prior month as we dropped below 3 million employed, down to an estimated 2,990,900. The Austin area saw a reduction of 7,300 jobs with a non-farm civilian workforce of 822,100.

These are December numbers, before many of the recent layoff pronouncements which arrived in January, so I expect this trend to continue, as it has been happening across the rest of the country over the past year. This is one time when you are glad to be the last ones at the table. The Governor's office released an economic advisory stating this trend should continue until September or October of 2009, but I have no clue as to why they think they can predict the future with any accuracy.

The thing we have in our favor is that we continue to see companies announce relocations and additional jobs into our area. Click on these company names to find out about the type of job growth we continue to see as organizations like St. Jude Medical and EaglePichler add to the available jobs in the Dallas area.

A couple of other interesting notes:

On the foreclosure front the numbers of foreclosures in the DFW area has flattened. DFW used to lead the country in the rate of foreclosures, but at .9 foreclosures/100 homes we are now almost 50% lower then the current US average of 1.7 foreclosures/100 homes.

Rentals of single family homes continues to be strong. We are still at 95% occupancy and continue to increase rents in the DFW market. If a home is priced correctly we are finding a good tenant within 3-5 showings. If a home is priced too high we will not see enough showings. If it is priced "right" you get enough showings, but if nobody is applying to lease it then the house is probably in need of upgrades or serious reduction to compensate for the need for an upgrade. That emerald green carpet which is still holding up well because you put in the "good stuff" back in 1997 might be holding back the home. Remember styles change and if your product does not keep up with the styles, it can cost you in reduced revenue. If an upgrade is recommended you need to evaluate how long it will take to recoup the new expense by the higher rent you will receive. The additional benefit of an upgrade is that the better equipped home tends to attract a better quality of tenant who is more likely to take care of the home and meet all their lease obligations.

Brace yourself for this last item. How old is your home? If you purchased your investment property new in 2004 or 2005 you need to prepare yourself for the expense of replacing the original builder installed fence. This will typically cost in the $2,000 to $4,000 range. Unfortunately, most builders use construction materials and methods which have a planned obsolescence of five years. The builders install an inferior fence to save money with the understanding that the typical owner occupied home has their original occupant five years or less. For an additional 20% more in cost the builder could have installed a fence that would last 15 years before needing a major repair. Most of our clients hold their investment properties for 10-15 years to make the asset work best from a financial return, so unless they have been through this before, this expense is a unwelcome surprise. We are reviewing all the properties we manage to better forewarn about this and other repairs and if we recommend a fence replacement we will be recommending an appropriate fence, one which will last longer, have fewer repairs and still look good at time of resale.

Sorry for the long post, I will try to keep the next one shorter.
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DFW Divergance - Apartment and Single Family Rentals

noreply@blogger.com (Kevin Martin) — Fri, 23 Jan 2009 17:16:00 +0000

The latest news is that apartment vacancy rates are up. The latest news reported by Steve Brown of the Dallas Morning News is that apartment vacancy rates in DFW are now over 8%. The most common reason given for this trend is that job growth is down so more people are sharing accommodations and/or adult children don't have jobs so they are not moving out of their parents home.

We have not seen a similar trend in our single family portfolios. Our overall vacancy rates are the lowest they have been in eight years, with a vacancy rate of less than 5%, which is what we consider full occupancy since about 5% of our tenants move out each month. Our January leasing activity is very strong, both in the amount of showings and actual leases. I have polled our local competitors and I have similar positive results from them. Our current vacancy rate has caused us to push rents up wherever possible and also be more agressive in removing tenants who default on any of their lease obligations.

Why the divergence from apartments? Part of the reason is there have been relatively few single family homes added to the rental pool in the past year. Investors have not been adding to their portfolio so supply is not keeping up with natural growth in demand as a result of the increasing population in our markets. Most of the growth in the single family rental pool is from reluctant landlords sitting out the currently soft sales market. This lack of growth in single family rentals is a stark contrast to the published net addition of apartment units (over 12,000 units in DFW alone) in 2008.

Let me finish with the same thing I always state - all real estate is local. I had a client call and tell me to not raise the rent on a tenant because everything they have been reading says that rents are going down and vacancy rates are up. Telling us not to raise rents when the market allows is like telling your stockbroker to return the stock dividend to the company you own shares in because you heard the company was having a rough quarter.

Remember, our compensation at Prime Properties is directly tied to an occupied house with a good tenant, paying rent. The more rent we can get for the home the more money we make. Our goals are to minimize turnover, but also to get as much rent as the market will bear bringing the most benefit to our clients and ourselves. We spend our full time life understanding how to do this for each specific house we manage, so if you own two houses in the same town, we might tell you to raise the rent on one house by $20.00/month, but on another $50.00/month. So please, read the news and educate yourself, but it is very important to rely on our experience on how to get the best performance on each individual house you own because we are much closer to the issues on each house, in each neighborhood, in each town, in each state.

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November Numbers - More Job Growth in Texas - Again!

noreply@blogger.com (Kevin Martin) — Sat, 10 Jan 2009 04:02:00 +0000

The number of jobs and households continue to increase in Texas. This is counter to all the other bad news around the country. As I said in my last post I do not expect this job growth to continue in Texas - -totally contrary to the economic hardship in other parts of country but for now the best place to have a job opportunity, or a rental property, is in Texas.

Statistics from the Bureau of Labor Statistics (http://www.bls.gov/news.release/pdf/metro.pdf) showed Texas added a net 33,400 more jobs from October 2008 to November 2008. 10,600 of these new jobs were in the DFW area and 3,200 of these jobs were in the Austin/Round Rock area.

The unemployment rate in Texas continues to increase which indicates people are moving into Texas even faster than new jobs are created and households are also increasing at a rate faster than new housing is being created.

Our Oklahoma and Louisiana markets are not moving in the same direction as Texas. If you read the report at the link above you will see that Tulsa, Oklahoma City, Baton Rouge and Lafayette have all had net job losses from October to November. The job loss has been small but the economic downturn is starting to affect these markets. Households/population in these markets continue to grow as people migrate from far more economically stressed areas of the US, but the jobs may not be as readily available as in Texas.

So what does this mean to Prime Properties and our clients?

The good news is that vacancy rates are down on rental homes in all of our markets! We see this positive trend even though vacancy rates are starting to increase in apartments. So apartments and single family rental markets are currently diverging. Right now you get more rental home for your dollar than you get apartment for your dollar so we see more people moving from apartments to single family homes, and these people are competing with 1) ex-homeowners displaced by foreclosures and 2) families relocating from other parts of the country but not ready to buy.

Please remember we deal with many micro-markets, so your specific home may not always be able to benefit from these favorable trends. We are using the current conditions to 1) increase rents where we have found our homes to be under-priced and 2) we are removing marginal tenants and replacing them with new tenants. Every landlord deserves to have a tenant who will follow their lease obligations, so we are using the current market to upgrade tenants. The higher vacancy rates in apartments means that the tenants we displace will have a place to go, one which will be more appropriate to their needs and means.

If you have any questions about the current macro or micro market trends and how it may impact you, please feel free to ask me, just send me an email at KMartin@PrimeProp.com. If I cannot answer your question I will put you in touch with the best person to provide you quality information.
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7,000 New Jobs in DFW for October!

noreply@blogger.com (Kevin Martin) — Sat, 06 Dec 2008 15:07:00 +0000

The numbers are out and the Dallas / Fort Worth area is one of the few bright spots in the current economic decline. 7,000 new jobs were added in our area in October, for a year to year increase of 50,000 new jobs. This is especially strong since the majority of the construction layoffs in our area have been completed. I do not believe our area to continue to run counter to the national trends in a prolonged recession, sooner or later we will get hit, but the continued addition of jobs at this time means more renters and more people who can pay their rent and be good tenants.

The source of this information is this news release from the Bureau of Labor Statistics. Go to this link and read the actual release http://www.bls.gov/ro6/fax/dfw_ces.htm

We are seeing great concern about the economy by all our tenants. Many are buckling down and making sure they are meeting their basic obligations for if/when the recession hits them. All in all this is a good thing, people are trying to be more responsible and protecting their ability to take care of the basics of food and shelter.

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It's Time to Pay Your Property Taxes

noreply@blogger.com (Kevin Martin) — Fri, 14 Nov 2008 22:02:00 +0000

This is the time of year when tax bills are due. Prime Properties does not pay tax bills for our clients, you are paying these yourself or they are paid out of an escrow account managed by your mortgage company.

If you pay the tax bills yourself you can send the payment before the end of the year in order to deduct the expense on your 2008 personal taxes. If you do not have the funds to pay by December 31, make sure pay by January 31 in order to avoid steep penalties for late payments. It is cheaper to borrow the money then to pay the late penalties.

You should expect to see anywhere from a single tax bill up to a total of three bills, this depends on how the tax districts are divided for your property. In Texas your tax bill will be approximately 3% of the value of the home. In Oklahoma your tax bill will be approximately 1% of the value of the home. The reason for the huge difference is because Oklahoma has a personal income tax to help fund the government, while in Texas most of the funding comes from property taxes.

If your taxes are paid by a mortgage company escrow you should still receive your own copy of what your tax bill is for the year. If you receive nothing then it is likely you do not have your correct address listed with the county tax office. It is very important that you have your proper address listed on your tax records since this address will be used to communicate with you for various reasons. An example is if your HOA places a lien on your home, they will normally use the address on the tax records to notify you before they foreclose on your home. If you do not have the proper address on the tax records your home could be foreclosed on and you will never know until it is too late!

What if you want to contest your tax valuation? For Texas the time to contest your taxes is in the April 15 - May 31 time frame. It is too late now to do anything about your current tax bill.

Send me an email at kmartin@primeprop.com if you are a Prime Properties client and you have any questions about your property taxes. I will do my best to answer any questions you may have.

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Where Do I Put My Money - Investment Properties or Stocks?

noreply@blogger.com (Kevin Martin) — Mon, 20 Oct 2008 01:11:00 +0000

I have been quiet about the recent collapse of our banking and credit systems and the impact on myself and my clients. In a recent opinion editorial printed in the New York Times, Warren Buffet is quoted saying "Be fearful when others are greedy, and be greedy when others are fearful". This is a cornerstone on why Mr. Buffet says he is buying stocks, specifically American.

I agree with Mr. Buffet, a pretty easy thing to do. In my short lifetime I have seen three significant drops in the overall stock market and you would have been well served to invest after the drop/adjustment and wait while the general market recovered over the next two years. What to buy? I have followed Scott Burns advice, looking for low fee index tracking funds and avoiding specific securities.

What about Real Estate? In the past I have followed a 50/50 strategy, with 50% invested in long term real estate and 50% in equities. Right now I will spend my cash 20% on real estate and 80% in equities hoping to benefit from the expected return to "proper" value. George Will was on a recent Sunday morning show and stated Charles Schwab had a market capitalization of $24 billion but had cash and receivables of $31 billion. If this is the case then there must be an adjustment at some time. Buying Schwab under this scenario is the definition of value investing, the type of value misalignment Warren Buffet looks for when buying a company (along with other values).

You may ask - why would I put any money into real estate, shouldn't I put it all in the stock market? I still want to diversify because there is a potential that a market recovery will not be broad based and it could take a very long time. If you study history of markets you know about Japan's "Lost Decade". Japan's lost decade showed no significant increase in equity values or increases in real estate values. If our current adjustment turns into an American lost decade then you will not see a return on investments in stocks for a very long time. However, if you can identify quality income producing real estate opportunities you have an opportunity to get a return on your dollars even if the real estate asset does not increase in value.

The facts are that in Prime Properties real estate markets the real estate values have stayed fairly flat, not going up or down significantly. This is not true in the over heated California, Arizona and Florida markets which have seen significant drops in value, and there could still be more to come in those markets. Even more important is that average rents have increased in our markets, again a different outcome from what has been seen in the over heated markets which have seen significant drops in rental rates.

In our markets there continue to be buying opportunities where you can achieve positive cash flow with 20-30% down on a home where the replacement value is higher then what you will pay for the home. As long as people continue to move into our markets you have a level of protection that the value will not drop significantly.

Since I am young(ish) and will have 20-25 years before I need to access my money I plan on shifting a higher percentage into equities, gambling that the stock market will see a significant recovery. I will not sell my real estate to make this happen, as the costs to divest are too high so I will only be making these investments from cash on hand. If I wanted a more conservative approach I would still use a 50%/50% strategy.

My personal results over the past ten years would have been better if I had followed 80% real estate and only 20% stocks but I am looking forward not past. I cannot deny the current situation where many stocks appear under valued when compared with the intrinsic value of the assets of the company. Whatever I do, I will do it slowly and my long term strategy will continue to have a high focus on real estate and being a landlord.

Speaking of values. My wife came home from Costco with five $20.00 Starbucks gift cards, a $100.00 value. She paid $80.00 for these five cards! Now think about this for a minute, and if what George Will said was true about the Schwab valuation, go call your broker and buy some Schwab stock.

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What is My House Worth?

noreply@blogger.com (Kevin Martin) — Sun, 21 Sep 2008 12:00:00 +0000

As an investor part of my job is to keep tabs on my investments and assess the performance. One of the measures in real estate is the equity (and equity growth) in each property I own. Equity is defined, in its simplest form, as ownership. All of the homes I "own" have mortgages so I my equity is only a part of the total value of the home and the lender owns the rest.

To arrive at the amount of my equity I use this formula ASP-SC-MSE-AO=equity where

ASP=anticipated sales price

SC=sales commission

MSE=miscellaneous sales expenses (such as a fresh coat of paint or other minor repairs)

AO=amount owed

Here is how this works - I believe I can get $145,000 as a sales price within 30 days of putting the home on the market, I will pay 6% sales commission, I will have $1,500 in make ready expenses and the amount I owe is $96,000. $145,000-$8,700-$1,500-$96,000=$38,800, so my equity in this property is $38,800.00. It is important that I use an ASP which will allow me to sell the house within thirty days. If I pick an ASP too high there will be additional costs of sales which increase as time on the market increases.

If you use a program like Intuit's Quicken or Microsoft Money to track your loans and associated assets the formula used for equity omits the cost of sales. Their formula will only include ASP-AO=equity so they will show an equity position of $49,000. This is quite a difference.

The biggest variable is to decide what would be the current sales price of your house. One of the attractive things about stock ownership is you can look to the stock exchange and get a fairly accurate idea of the value of your stock at that specific time. With stocks or real estate the most important number is the price at the time you actually sell, but it is much harder to make a decision on when you should sell real estate because it is harder to determine the value of the unique property you own. The share of IBM stock you want to sell is identical to and has almost the exact same value as the share of IBM which was most recently traded on the stock exchange. So how do you track or determine the value of your house so you can make good buy or hold decisions?

Option 1) Look to the tax rolls

Option 2) Use a realtor to get an Comparative Market Analysis (CMA)

Option 3) Pay for a professional appraisal

Option 4) Ask an expert in the market (a Realtor) for an opinion based on their experience

Below is a deeper discussion on each method and when you want to use each method. It is important that you decide why you are looking to understand the the value of the home and use the appropriate method for determining the value.

Option 1:

Look to the tax rolls. In our markets the local taxing authorities are supposed to value a home based on what it would sell for on the open market. This works best when you have a fairly homogeneous market and your home tends to be an average home. If you want to get an idea within 5% of a true number, you can usually use this as a starting benchmark. If you do not need to make a hard decision, but you just want to know what your net worth is then you will probably be well served with this number and no additional research.

Option 2:

Use a realtor to get an CMA. A CMA compares your house more closely with product just like the home you own. This is a more intensive analysis and you will find out additional information. The data used for a Realtors CMA is more current then what is used for tax valuations. You may find that the market has trended much higher (or lower) in the last six months. The other piece of information you get in a CMA is the time on market before each house sold, what was the original asking price and if the house had to be reduced in price before it sold.

Option 3:

Pay for a professional appraisal. I like this option least of all. An appraisal is usually performed in order to value a home for a mortgage and I believe there is less stringent analysis done even though the appraisal is using more data points. I believe it is less stringent then the other methods at arriving at a projected sales price because out of these three methods you are least likely to get an immediate correction when there is an incorrect valuation. If anything the market forces tend toward optimistic valuations, which would leave you disappointed if you tried to sell and found out you could not receive the appraised value. There are many reasons for this dynamic, but I will not elaborate on my opinions as to why at this time. Since this is a blog I can just say that this is my opinion based on my experience and leave it at that.

Option 4:

Ask a Realtor for an expert opinion. A Realtor will take the information from the tax roles, a CMA and apply their personal experience which, if you have a good Realtor, will provide the best results at determining an expected sales price. A Realtor can also provide information on the time it would take to sell the home based on the price you want to receive. This is important before you list a house for sale because a house listed for sale without a paying tenant costs you money! The cost is not just your mortgage, but the lost revenue because you are not receiving rent. If your mortgage is only $1,000/month, but the rent you receive is $1,400/month, then it costs you $1,400/month just to have a vacant home listed for sale. A word of advice, since Realtors only get paid at the conclusion of a sales transaction, don't call every year and ask for their expert opinion based on an in-depth analysis for free. You can achieve an annual assessment using the other methods, but save this type of in depth analysis for when you really need it, don't burn your valued resources by asking repeatedly for free advice.

So, if you want to determine the value for your annual assessment of your net worth or you are considering refinancing then use option #1. If you have decided that you are going to refinance for some reason, then option #3 is a requirement. If you think you want to sell your home, then start with option, #1, then go to option #2 then finish with option #4 before making a final decision.

If you know you must sell the home, then go immediately to option #4 - get your hands on a trusted Realtor and employ them as your agent. As your agent you should divulge all your issues and motivations and ask them to help you get what you need. I hate to have to say this, but remind your Realtor of their obligation to watch out for your interests and keep your goals and motivations confidential - if you do not feel comfortable that your Realtor can do this for you then do not sign up with them to represent you.

I hope this helps. If you want more detailed information please email me directly and if I am not the best resource for your question I will put you in touch with the best person here at Prime Properties to assist you with your question.

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Watching Out for You in Times of Natural Disaster (and all the rest of the time as well)

noreply@blogger.com (Kevin Martin) — Thu, 04 Sep 2008 02:12:00 +0000

Hurricane, fire, flood, tornado, hailstorm. Nobody ever wants to deal with these types of disasters. When these disasters happen they cause great personal anguish and can also damage your personal financial health. Prime Properties is here to assist you when these situations occur. We bring our experience to you, helping put you at ease and at the same time working to protect your financial assets.

Prime Properties has experience and resources which are seldom found in a single place. We currently manage over 2,200 individual residences in six different metropolitan and micropolitan areas. Over our history we have managed over 3,000 individual homes. We deal with tornado's in Oklahoma, hailstorm's in Texas and hurricane's in Louisiana, so when a problem happens it is unlikely we are novices to dealing with that problem.

What does this mean for our clients?

First of all you have someone to ask for immediate direction. We cannot change the weather, but we assist in providing direction on actions you can take to protect yourself and your assets.

Second, we are the feet on the street and the eyes on the situation. Not only do we put our eyes on the property, but we know what to look for because we have experience dealing with crisis. Most people never have a roof destroyed by hail, but it is something we have seasoned experience with simply because of the volume of inventory we manage.

Third, we access an extended group of trusted resources, including insurance consultants and repair professionals. This group of resources are leveraged to your advantage because they are motivated to treat an individual situation with the same care they would provide a valued repeat customer. Many of these extended professionals provide initial support and analysis at no charge to our clients. CNR Insurance (http://www.cnrbrokerage.com/) is one of these trusted resources, they provide guidance even if you are not their client. CNR would prefer to sell you insurance, but even if you are not their customer they support you as a customer of Prime Properties. It is important to you that we access these business partners as they bring their industry specific expertise to layer on top of our expertise as property managers.

If you are a current client with a home in the area affected by Hurricane Gustav we have already sent an email discussing the plan for evaluating the homes we manage and when this task will be completed. It looks like Gustav was not as bad as it could have been, but if the situation was worse, we would send in resources from our other offices to assist our local staff. It is always better if these situations never happen, but when they do occur, all our resources are on your side.

If you have any questions about this or any aspect of rental property ownership, please ask your property manager. Each of our managers have an active portfolio of 150-300 homes and a support team which they use to provide expert guidance on all areas of investment ownership. These resources include repair professionals, lawyers, accountants and experienced professional investors. If your property manager does not have the immediate answer or experience to answer your question, they have easy access to the resources to assist you in making good decisions which will help you meet your goals for your investments.

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What Does Fiduciary Responsibility Mean?

noreply@blogger.com (Kevin Martin) — Sat, 09 Aug 2008 17:07:00 +0000

Prime Properties and its employees have a legal fiduciary responsibility to our clients. What does this mean?

A fiduciary responsibility is comprised of these basic elements: care, obedience, accounting, loyalty, and disclosure.

Care: This is the first most obvious, we must provide our efforts and experience in the area which our client has hired us. It is important that a client understand our business expertise and specialties to determine if our business processes are aligned with their goals. This leads to element #2, obedience.

Obedience: Our job is to help you meet your goals. We must place your goals above our personal goals and assist in following your directions. There are limits to this. One of the limits is we cannot assist a client in breaking a law. Another is that we are not married to a client, and if our business processes are not set up to best assist a client in a unique set of goals we reserve the right to terminate the relationship for the good of the client.

Accounting: We handle client's funds and must faithfully document and report on the handling of the funds. We "close" our books and produce reports no less frequently than once a month. We follow good business and accounting practices and produce reports which are designed to provide accurate information as required by the government.

Loyalty: We represent our clients interests first above all others. I stated under "obedience" we must place our clients interests above our own, we also place our clients interests above other parties. Our ethical obligations under our business license require us to be fair to all parties, but we only provide advice to our clients, not to other parties. Our requirement to be fair means we must follow disclosure rules, but we must not provide advice to other parties on how to use disclosed information.

Disclosure: We must disclose any information which might have a material impact on how a decision is made. Put another way, if an ordinary person might make a different decision based on the information then the information is material and should be disclosed. Our policy is, when is doubt, disclose. This also ties together with care and loyalty because, as experts in our field, we often know better what is material and what is not.

Realtors and Real Estate Brokerages have these obligations to our clients and it is a very important reason for hiring a Realtor to assist you in your real estate goals. We have to tell you the things you need to know, even when you don't want to hear them. We must watch out for your best interests even when your decision making may be tainted by temporary issues. And most important, you have an expert in your corner, on your side, fighting for you!

There are five relationships I take great care in deciding, 1) my spouse 2) my doctor 3) my employer 4) my attorney and 5) my realtor. If a realtor did not have a fiduciary responsibility to me then this profession would not make the list. Not all Realtors are equal. You should take the time to determine if the person fighting for you is all you want them to be.

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Price is What You Pay, Value is What You Get

noreply@blogger.com (Kevin Martin) — Sat, 26 Jul 2008 03:36:00 +0000

I spent a week in Michigan visiting friends and family near Ann Arbor where I was raised. The mood and outlook on the economy in the state is not very good though Ann Arbor is in decent shape compared to the rest of the state. The local folks talk about how there are many "good deals" in the area real estate market. I take exception to the idea that there are good deals; when I look at a piece of real estate I try to anticipate how it will "perform" over the next 15-20 years and I do not see the indicators which would lead to good performance in the forseeable future for Michigan area real estate.

Remember: Price is what you pay, value is what you get. Even though prices are down in Michigan from 2-4 years ago, I do not think there are many good values because I do not see the economic issues which will cause the real estate to perform at a high rate going forward. I do not see immigration into the state, I do not see rising population with increasing needs for housing and I do not see wide spread job growth which would provide quality income for people to pay for housing. If you have to live in Michigan it is now cheaper to buy the house you want, but you should be buying as a residence and not as a quality investment.

You buy investment real estate over time with the goal of selling it later after taking profit, over time and at the sale. You are attempting to be a bit of a fortune teller, and predict the future. What makes a property a good value really depends on what the performance is going forward, so do not make the mistake of believing you have a good deal because you are buying something at a lower price then you would have paid in the past.

Nortel stock (NT) was was at $81.00/share in August of 2000. It dropped to $9.00/share in 2001 and I bought 200 shares. I believed that Nortel would continue to be a viable long term play because of their strong presence in the corporate telecom market and the entrenchment in US Government data switching. Cisco seemed to have won the battle for corporate networks, but I believed the Nortel government implementations would allow them time and money to recover. In 2003 I sold my stock at slightly more than $2.00/share, after deciding that even if the company were to recover I should sell my stock (at this point in time it was now worth $400.00), and put the money someplace else. Nortel stock is now trading at $7.00/share after a reverse 10/1 split, meaning my shares would be worth $140.00 today. I am glad I only lost $1,400.00 in the deal!

The moral of the story is that just because a price has dropped does not mean you have a good value. When investing, you need to ask yourself, what are the values which will cause people to see the investment as more valuable in the future. An investment is only a good value if the investment contains qualities which will cause it to perform better going forward!
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Don't Wait to Buy Real Estate, Buy Real Estate and Wait

noreply@blogger.com (Kevin Martin) — Wed, 09 Jul 2008 13:00:00 +0000

I have been unable to find the person to whom I can attribute the title of this post, but for people who have been tracking and investing in real estate it is a statement which rings true. I do not believe Real Estate is a way to get rich with nothing of your own to invest. However, you can start to build wealth with a small stake hold of $20,000 to $30,000. If you have liquid assets of $100,000 to $1,000,000 it is imperative you have a stake in Real Estate if you want to protect your money from inflation. This post is written for anyone who has $1,000,000 in liquid assets or anyone who wants to have this much money at some time in the future.

If you have any significant liquid assets you need to be proactive right now, placing your money in a location which will protect against the degradation of inflation. Remember, if you do nothing with your money it will be worth less next year (you can buy less with it) because of the impact of inflation. So what are your options? Here are some excellent ideas.....

Option 1) You can put the money in an interest bearing account and receive 1%-4% in income, but to benefit you must exceed the pace of inflation after you pay tax on the income. You need to ask yourself the question, do you think inflation will be more than what you receive in interest? If you believe inflation will be greater than the 1%-4% you receive in interest then you are betting you will lose money.

Option 2) You can invest in the stock market and pick stocks or index funds which will beat inflation, on average these types of investments have outperformed inflation. Stocks/equities are an important part of one's portfolio, but you suffer when we have situations like the 20% drop we have experienced in the past nine months.

Option 3) You can invest in precious metals and other natural resources like oil. Many experts says these are good bets because there is a finite supply of these items and these resources are being used at an increasing rate in the developing world, especially in Asia and Africa. Other experts say to be wary of these investments as they tend to be more volatile due to the impact of speculators.

Option 4) Go to Vegas! This is not a joke. Some people are wealthy enough that this is truly and option. You may win and you may lose, but you will have some good stories by the time you are through. Most people believe you only live once so you should go out with some good stories!

Option 5) Buying raw land. This is one of the most truly speculative forms of investing. The positive is that almost all land goes up in value over time (except the area around Chernobyl). There are some problems here including difficult or costly financing and the lack of income while you are waiting for appreciation until you sell for a profit. This is truly a "buy and wait" scenario.

Option 6) You can invest in Income Producing Real Estate. If you do this you need to be careful to match your investment with your need for quick access to the money. I strongly advise against real estate if you "need" to use this money in less than five years because the cost of sale may wipe out any profit. Real Estate has a significant advantage over interest bearing cash accounts, the leverage available through extended low rate financing. Real Estate has a significant advantage over stocks, it has intrinsic value that will extend beyond a business model or market. Real Estate has a significant advantage over precious metals and other natural resources in that it keeps producing income on an annual basis - it is not "consumed". About Las Vegas and buying raw land - you should only do these with money you can afford to lose. There are risks in Real Estate which you need to consider, primarily you need to understand the potential for prices to go down and the costs of divestiture. This can impact you if you may need quick access to the money.

What do I do with my money? In planning for my future I first take advantage of any matching funds my company may provide and any tax deferred plans available under current tax law. After that I set aside a portion my income as cash to invest. I invest portions of my portfolio in a cross section of these types of investments listed above. For cash I need in the next 12-18 months I invest in interest bearing cash accounts, getting my 1%-4% and accept the fact it may lose value due to inflation. The remainder I invest in stocks, natural resources (through index funds) and real estate. I spread my risk. In order to minimize risk in stocks I invest in index funds and avoid specific equities, in order to minimize risk in natural resources I keep my investment portion small and I also use professionally managed mutual funds to purchase these types of investments.

In real estate I buy single family homes and here are some of the strategies I use to minimize my risks and increase my opportunity for growth. I pick real estate markets where the investments can be easily purchased by the "average" household. I look to markets where the percentage of household income required to buy an average home is low. The National Association of Realtors uses a "Housing Affordability Index" to measure this. The Housing Affordability Index is the ratio of median family income to the income required to qualify for an 80 percent, fixed-rate mortgage to purchase the median-priced home. The National Association of Home Builders has a similar index called the Housing Opportunity Index or HOI, which is a calculation of how many homes sold in a particular quarter were affordable to the median household. Whichever ratio you use, the fact is that when fewer people can afford the average home you have an indication that homes are "overvalued" and priced high. By purchasing an investment property in an undervalued market I have three huge advantages, 1) there is a better chance the market is at low point so I minimize my risk for prices going down, 2) I increase the available pool of potential buyers when I want to sell because a higher portion of the public can afford a loan and 3) there is a greater opportunity for appreciation.

What else do I do to minimize my risk in real estate? There are many other things I look for, including but not limited to 1) good rent/value ratios 2) immigration/rising population 3) job growth 4) desirability (usually translated to mean low crime, good jobs and good schools) and 5) opportunity for better than average appreciation.

One of the other strategies I employ includes buying more, less costly properties. In our markets you can buy quality investment properties from $140,000 to $350,000. Once you pay more than $400,000 for a rental home the rent/value ratios drop to a point where the performance of your investment starts to degrade at a fairly fast pace. To take this further I would rather have 8 homes worth $150,000 each then 4 homes worth $300,000 each. With more, less costly homes I have more liquidity if I want to sell and the impact of a vacancy is less harsh. The $150,000 home will also a simpler infrastructure (one air conditioning unit instead of two or three) meaning the maintenance costs will be lower. There will also be a bigger market for renting and selling since more people's incomes will match the price point.

There is also a market trait where the higher priced homes will pull up the price of the less costly home. You will see a neighborhood with homes in a $200,000 - $300,000 price range, and when the higher priced homes go up $50,000 in value the lower priced homes go up the same amount. Since you put less money down on a lower priced home your actual return on your investment is much higher. My father always told me "buy the cheapest house in the neighborhood, but make sure it is in a good neighborhood" so I could take advantage of this trait.

What not to do? Do not take what I have written and create a hard/fast checklist. Life is a series of compromises. I don't think I have ever found an investment that totally matched all of my desired traits. If I wait to find the "perfect property" I will be worse off then if I make a decision which includes some compromise. In the end, I need the performance offered by real estate so I must to get into the business even if the situation is less then perfect.

What does this type of portfolio cost? It will cost about $250,000-$260,000 in cash to acquire eight $150,000 homes and your return from 3% appreciation will be $36,000/year of growth in value. The return should automatically adjust for inflation by growing each year as the start point for your valuation is higher each year. This is about 13%-14% return on your money from appreciation alone - now that's an investment which beats inflation!

This conservative strategy I just laid out will provide an excellent return. But if you buy now when the market is slow, then you have the opportunity to be holding onto these investments when a good market uptick will happen. If you are fortunate to see a year with a 10% appreciation on your homes, you will actually realize a 40%+ return on your investment in a single year. Remember, Real Estate appreciation is a lagging indicator so do not wait until signs are pointing up, it will already be too late. Buy now with an expectation of waiting for 10-15 years to cash in and you will be in a position to take advantage of any extraordinary upticks. If you don't get any uptick you will still do very well as compared to most other investments.

AT&T Moving to Dallas

noreply@blogger.com (Kevin Martin) — Sat, 05 Jul 2008 21:40:00 +0000

AT&T announced the relocation of it's corporate HQ from San Antonio to Dallas. This is another confirmation that Dallas is the place to be for business! As the US national economy retrenches you will continue to see major corporations look to find ways to better utilize their resources and the advantages of moving to Texas is one of the things highlighted during each economic slowdown over the past forty years. This move highlights that it is not just important to be in Texas, but it is important where you are in Texas. The DFW metropolitan area is home to over 10,000 corporate headquarters making the Dallas/Fort Worth Metroplex the largest corporate headquarter concentration in the United States.

AT&T already had 7,000 more employees in Dallas then in San Antonio (~13,000 in Dallas versus ~6,000 in San Antonio), but the importance of Dallas in the national and international business community makes a difference to a firm like AT&T. Additional benefits include a more extensive work force in the telecom industry for AT&T to draw on and the transportation advantages of flying in and out of DFW International Airport (the world's third busiest airport) make the Dallas area an important hub for all things telecom.

Other major firms to move to Dallas recently include the headquarters for Flour (an international construction firm from Irvine, California) and Comerica Bank (from Detroit). The Dallas/Fort Worth Metroplex continues it's reputation as a headquarters city of choice for Fortune 500 firms. With 25 of the Fortune 500 firms having their headquarters in this area, the list includes oil giant Exxon/Mobil, airlines American and Southwest, retail giant's JC Penney, Blockbuster and Radio Shack and technology giant Texas Instruments. Only the New York and Chicago metropolitan areas have more Fortune 500 firms than the Dallas/Fort Worth Metroplex, but when you count all corporate headquarters, the number of smaller and mid-size corporations make Dallas the king of headquarter cities!

A more complete list of major corporations in the Dallas/Fort Worth Metroplex, public and private, is located on wikipedia at:

http://en.wikipedia.org/wiki/List_of_major_companies_in_Dallas/Ft.Worth

Stock Market down 20% since October

noreply@blogger.com (Kevin Martin) — Mon, 30 Jun 2008 23:42:00 +0000

The S&P Index which tracks a broad section of stocks, is down 20% since October highs. My own stock portfolio is only down about 15% in the same time because I have a decent sized portion of my investments in energy focused index funds which have gone up in value. I have an equal amount invested in single family Real Estate (I invest 50% in Real Estate and 50% in the stock market). During this same time that my stocks have taken a beating my Real Estate holdings have performed at ??? The reason for the question marks is that there is no similar direct measure since each piece of real estate is unique. Based on what I see on pricing trends (determined by sales reports and and tax valuations) the value of Real Estate in our markets is fairly steady, in fact according to the tax man my properties are worth more than one year ago. At the same time rents are pushing higher as the supply of single family rentals is tightening so the value of my homes, based on revenue, is definitely up. Even if I didn't get one dollar more in rent/month, I have little or no vacancy at tenants turns, providing me with higher annualized revenue. Three years ago I allocated one month of vacancy (lost revenue) at every tenant turn. I have had three tenant turns this year with a total of 7 days lost rent for all three turns.

So, if you think the bottom is reached on the stock market, then buy stocks now - at the bottom. If you think the stock market is too unpredictable, then buy CD's, treasuries or real estate. In our markets it will be hard for real estate prices to go much lower, read my previous post http://blog.primeprop.com/2008/05/should-i-buy-investment-properties-now.html and you will better understand why.

What is a "Self Servicing Investment Property"?

noreply@blogger.com (Kevin Martin) — Sun, 22 Jun 2008 17:18:00 +0000

I often hear people talk about cash flow from their investment properties. I want to introduce a different term, it is the "Self Servicing Point" for your investment. I will define this term a little later after I talk first about setting goals for an investment. When buying any investment you need to define what your goals are first and then decide if this investment is the proper vehicle for you to achieve your goals. This is a common decision process when working with an investment professional to decide if you want to buy stocks or bonds and what types of stocks and bonds you may want to buy. When buying investment real estate you have as many options as you do when buying stocks or bonds. Your broker or advisor always is asking about whether your goals are for growth or income and what is your risk tolerance. They try to educate you to understand your goals and to recognize that these goals will change over time. You have the same opportunity to tailor your real estate investments to meet your goals.

There is a huge difference when deciding to buy stocks and bonds versus when you buy real estate, and this difference impacts how you live with the investments on a day to day basis. When buying stocks and bonds all but very small percentage of individuals borrow money to buy stocks and bonds, whereas with real estate most investors borrow money for their investments. The fact that most real estate is purchased with borrowed money (leveraged) impacts how we have to live with an investment on a day to day basis because you may have to come up with money periodically if expenses exceed your revenue. If you pay cash in full for rental properties it would be very rare for your expenses to exceed the income in any single year. Most people want their real estate to operate without additional cash infusions, so achieving this goal is a big part of what I will later discuss.

Now let's talk about setting goals for an investment property. Some people need to receive monthly income from an investment property. Others could care less about the monthly return on an investment property (positive or negative), what they are most concerned about is the overall return at the time they sell the property. Most people are in the middle of these two extremes, they are looking for an investment where they get a good return at the time of sale, but they don't want to have to continuously contribute into the investment. This is why, for real estate, we want to understand the "Self Servicing Point".

Here is what I mean by the "Self Servicing Point". You want to understand how much money you must invest so the rental income covers all normal expenses. If you buy a house with zero money down payment and the rent received covered all mortgage, interest, taxes, management and maintenance expenses then you would have a self servicing point with zero money down. In this scenario, every dollar you receive when you sell the home, above what you owe in the mortgage, would be free money. Unfortunately these situations almost never exist, your role is to bring some money and a good credit history to the table and in return you can make a profit. Depending on the market and type of property you will need to bring anywhere from 5% to 50% down payment in order to reach the self servicing point. If, in a certain market you need to bring a 20% down payment for the product to be self servicing, you know what your true investment is. This point is where the investment is "break even" on an annual basis. You may receive positive cash flow in a given year but you may also receive a slight negative if you have a larger maintenance item, but over the first 3-5 years your net income after expenses will be break even. So in a certain market (the city) for a certain product (a single family 3/2/2 home) you may find it becomes self servicing at a 20% down payment. This is the first step to comparing investment properties.

Now that you have found the self servicing point, you need to make a decision on what you believe the appreciation will be. If you are looking at two products where a 20% down payment is the self servicing point but one is in a market with a tremendous upside potential for appreciation, the better investment should be the one with stronger upside, even though the numbers look the same at point of purchase. What if you have one market where the self service point is 20% versus a market where the self service point is 30%, then the one with the 20% self service point would be the better investment, right? Not necessarily -what if your goal is to purchase a home which will double in value over seven years. If this is your goal and the investment pegged at 30% doubles in value over 7 years, but the one with a 20% doubles in 15 years, then you would have been better off buying the home with the 30% self service point.

Let's put this into real situations. Prime Properties operates in three separate areas along Interstate 35. These areas are, from north to south, Oklahoma City, Dallas/Fort Worth and Austin. Most of the time, with a bit a research, you can locate an investment property in Oklahoma City with a self service point around 10-15% (on a 30 year fixed rate note). A similar home in the Dallas area has a 15-25% self service point. In Austin you are usually looking at a 25-30% self service point.

Why are there differences in the three areas and what is a good investment? In all three of these markets the average price of a home is well below what people can afford to pay based on average incomes, which is why experts and pundits say these markets are undervalued and a good place to buy. Austin is a less developmentally friendly area and I believe this accounts for part of the discrepancies, since this may drive up the base land costs. I believe part of this is also speculative. The speculation is based on a belief that Austin values will increase at a greater rate than Dallas or Oklahoma City. According to the US Census Bureau, over the next twenty years, Oklahoma City is supposed to grow by 25-30%, the Dallas area is supposed to grow by 45-50%, and Austin is supposed to grow by 90-100%. What does that do to housing appreciation? I don't know the impact but it may be causing some markets to get bid up higher than others. Part of the discrepancy is that people are willing to pay more to live in specific areas because it may have more of what they want. Just look at what people pay to live to in the San Francisco Bay area! (To better understand this I strongly recommend you read the book "Who's your City" by Richard Florida http://creativeclass.com/richard_florida/books/whos_your_city/ )

So how do you decide what to buy? It comes down to what do you believe will perform best over time. Just as you may decide to buy real estate over stocks and bonds you get to decide to buy a home in Oklahoma City over a home in Dallas. Think of it like this, if you are buying stock in a soft drink company you may be looking at Pepsico (PEP) and Coca-Cola Co. (KO). According to Yahoo Financial PEP closed on Friday at 65.08 with a P/E ratio of 18.78 and KO closed on Friday at $53.66 with a P/E ratio of 20.18. Pepsi costs more per share but based on it's P/E ratio it is a "lower priced". Why is it a lower priced? It is lower priced because the market believes Coke will perform better over the future. When you decide what to buy you need to decide what you believe will perform better. Maybe you drink Coke but your kids and all their friends drink Pepsi, then maybe you go with Pepsi. Or, if you want to hedge you bet, buy some of both! I look at the "self servicing point" like a P/E ratio. It gives you a good idea of what the market believes the long term value is of each product, but it does not really tell you which is the best investment for you.

If you have spoken with me or read any of my blog entries you know I believe single family real estate should be a strong component of an investment strategy and you know I believe that now is a good time to buy. So if you are wanting to buy maybe your answer is to buy two in Oklahoma City, two in Dallas and two in Austin. If you want to do research, click on the links at the right hand side of this page for each area where we do business, the links will take you to demographic information for each area as presented by wikipedia.

Once you decide where you want to buy and at what point a home is self servicing you can tailor your purchase to meet your goals simply by dialing up or down the amount of your down payment. If you do not care about any current cash flow, then determine the point of self servicing, put that amount down and go on about your business. At some point in the future, as rents rise, the investment should start producing increasing income on a regular basis. If you want to realize monthly income from the property right now then you need increase the amount of your down payment. If you want to have the highest return, and you can afford higher risk because you have other cash and income, you can go for the most leverage possible but you may have times when you are paying more in expenses each month then the property produces in income.

I am sorry if this is all seems too confusing or too many options. This is the good and bad of investing. I like investing in real estate as opposed to stocks because it is something more tangible to me. I can see, touch and feel the thing and I understand how it adds value. This makes it easier for me to make a decision. Add to this the tax benefits for real estate investments and the opportunity for leverage, and it makes it a no-brainer why real estate is where I put my money.

Getting Funding for Investment Properties

noreply@blogger.com (Kevin Martin) — Mon, 16 Jun 2008 23:30:00 +0000

One of the recent challenges we (and our clients) are facing is getting funding/financing for purchasing additional investment properties at reasonable rates. This is true even if you have great credit. Some lenders are limiting the number non-owner occupied homes they will lend money for as conforming loans. The number used to limit the number of homes to ten homes. I checked with my mortgage banker last week and he told me that the number of investment properties you can have and still benefit from having conforming loans is still technically ten according to FNMA rules, but some lenders are choking it down to four with their own internal rules. I believe this is an effort to minimize the lenders risk. The lenders no longer can tell a good risk from a bad risk so their current reaction is to overreact and go very conservative. Please call us if you are having trouble with financing, we can refer you to avenues which are very investor savvy and will be able to help identify the best place for investor loans.

It may take another year or two before things settle down, but until then you must take the time to research options and, as always, feel free to ask us. Imagine you can call someone who knows 40 different people who have procured investor financing in the last two months. Imagine that they have used a variety of methods and brokers. You do not need to imagine, this knowledge is available at Prime Properties. Also, if we refer you to a mortgage broker or mortgage banker, it is only because we have found our clients having success, it is not because we get any referral fees or other compensation.

Oklahoma is OK - Buy Now?

noreply@blogger.com (Kevin Martin) — Wed, 11 Jun 2008 23:12:00 +0000

I recently posted commentary questioning if now was the time to buy additional rental properties. There are fewer people entering the landlord business now then was the case three years ago. Many people who were buying three years ago were buying because it was "fashionable". It was easy and cheap to get entry. It is now less fashionable then it was three years ago; there have been some changes while other things have remained the same. Let's discuss:

What has stayed the same?

Prices in Oklahoma and Texas have been fairly flat
This means the cost of entry is still close to the same as it was three years ago
The cost of money (interest rates) is about the same is it was three years ago
This means your monthly costs are about the same as three years ago
People keep moving into Dallas, Austin, Oklahoma City and Tulsa
This means there is a need for more housing

What is different?

You must have stronger qualification and bigger down payments to buy an investment property - no more "liar loans" or no money down loans - you have to bring something to the table!
This means fewer people are buying rent houses
This means, as a landlord, you have less competition
More people are renting as opposed to buying
This means you have less tenant turnover and lower vacancy, meaning lower costs
The major builders have "dialed down" construction
If people keep moving in there may be a shortage of available housing
Rents are already creeping up!
This means you have better income
If you offer a nice product you can be more demanding on your tenants
This means you get a better return when you have a better product

So, why are fewer people entering the market now than were entering three years ago? You got me - it doesn't make sense.

I am anxious to buy now. I expect raw material and building costs will rise in the near future. In Texas and Oklahoma this increase will drive up the costs and value of homes in our market. 80-90% of the cost of a home in our markets is the actual structure (the balance is the cost of the land), so when it costs more to build in the future the prices of homes will rise. Buy now to avoid future increases, but it also means you will take advantage of the appreciation. Conversely in most of California, only 20-30% of the cost of a home is the structure so when the construction costs rise you may see a corresponding drop in the land value leaving the overall cost of a home about the same meaning no appreciation or even negative appreciation. Land in Texas and Oklahoma is "dirt cheap" this keeps a "floor" on the prices and it also means the whole real estate business is much less speculative.

Based on this it makes sense to buy now, what do you think?

You Cannot Manage What You Cannot Measure

noreply@blogger.com (Kevin Martin) — Sat, 07 Jun 2008 12:01:00 +0000

When owning a rental property you need to manage your tenants, the actual house and your return on investment. You may cede much of this to your property manager, but now you are managing your manager. You could, like a stock owner, simply be measuring your overall financial return. As an investor property owner, your role may include doing everything from collecting rents, fixing toilets, and trying to stay abreast of all current and changing eviction and fair housing laws or you may simply work from a spreadsheet analyzing when the equity you have in a home may be better shifted to something else.

The title of this post is a line attributed to Phil Murphy of Forrester Research. Its relevance to rental properties is the importance of being able to remove some of the emotion from this very emotional business. Here are some of the metrics we use for measuring.

Is this a good tenant? This is for tenants who are currently living in a home and here we use a three step evaluator.

Do the pay their rent on time?
Do they take care of the house?
Do they report any potential problem?

This is pretty simple and straightforward. We preach this to the tenant from before they move in. If they fall short in any of these areas, we need to decide if it makes sense to continue to have them as a tenant. Since there is a cost associated with tenant replacement, we have to weigh their shortcomings against the cost to replace them.

Is this a good house? This is the question we ask to decide if we want to buy this house/keep this house as an investment property and it is used to compare with other houses. Again we have a basic three step evaluator.

What is the expected "rent/value ratio"?
What is the "expected appreciation"?
What are the expected "repair/tenant replacement costs" over the next 10 year period?

These measures are more complex and with questions 2 & 3 and these measures are more subjective since they involve forecasting an unknown. Rent/value ratio is a measure which provides your initial indication of cash flow, but it is also valuable when deciding if you should divest and reinvest in a different house after you have owned the home for a period of years. The "holy grail" of rent/value is to receive 1% of the value in monthly rent. If you can get this number you can generally afford to maintain the property out of incoming receipts. Expected appreciation is important when making a decision to keep a rental property which may be in a negative cash flow situation. You may be willing to accept a less attractive cash flow if there is a big payout at the end. The last item of repair/tenant replacement costs is more important when you move into lower priced properties in economically stressed areas. You may get a 2% rent value ratio in these neighborhoods for homes and small multi-family products, but the turnover rate, repair costs, legal costs and bad debt costs eat into this projected performance to the point that you may get no better financial performance over time, but you definitely will get more heartache.

The last item I am constantly measuring is how does the performance of this asset measure against other types of investments. People often question the value of real estate against simply investing in an S&P index fund. Real estate can be as dynamic as growth stocks or gold investments or as boring as corporate bonds. The type of real estate you buy should depend on your risk tolerance. The big mistake many make when investing in real estate is they measure the growth of the asset, which may be a meager 3%/year over time, instead of measuring the growth of their actual investment. If I invest $20,000 in a $100,000 home (converting a cash asset into real estate) and the home appreciates 3%/year over a 10 year period I end up with a $60,000-$70,000 asset. I end up with this large number because of appreciation of the asset and the tenants paying down my mortgage. My friends told how great the performance of their stock portfolio is, but it is rare for anyone but extremely wealthy people and their hedge fund managers to outperform my modest rental property, if you remember to measure the performance based on the actual money you invested. Just tell your friends "My lowly real estate only grew at 3%/year over the past ten years", but watch your personal balance sheet grow faster then your friends.

I hope this helps you keep your wits while you are a landlord. I am part mercenary; financial returns are my measure of whether to stay in this game. I am proud to provide a quality home to the renting public, but I am not a total mercenary. If I had to offer a quality product and lose money, then I would run from this business as fast as I could. If I had to be an unethical slumlord in order to make money I would run from this business as fast as I could. I think this is the best of all worlds, I get to add value and get a higher then average return by participating!

HOA's Should Love Investors - But They Don't

noreply@blogger.com (Kevin Martin) — Fri, 30 May 2008 16:36:00 +0000

I was reading more about the "mortgage crisis" and how it is affecting HOA's. With many people buying more house then they can afford, many HOA's are not collecting enough dues because the HOA dues expense is a bill that people are not paying. Some state laws allow HOA's to put a lien on a house so they can collect past dues when the house is sold. Some states, like Texas, allow the HOA's to foreclose on a house for any past due amounts, and we have seen this on some past due amounts as low as $200.00.

HOA's should love our clients because our clients pay their dues! Our clients can do this becasue they have income coming from the property. Another reason HOA's should love our clients is because our clients shrink the market of available homes, therefore, increasing values. HOA's are supposed to exist to assist all the homeowners in protecting the value of their asset. This goal should not discriminate against investor owner's. Problems occur because the HOA's are run by people, and people are not always that smart about making decisions in their best interests.

There is often a prejudice against "renter's" in residential neighborhoods. People who own the home they live in feel that renter's will not have the same common interest to maximize the value of the home they live in. This is true. People take this prejudice and try to keep renter's out of their neighborhoods. I call these folks "unenlightened". What these unenlightened folks fail to realize is their peers are not the renter's, their peers are the other property owner's, who I call the investor/owner. An investor owner actually has an even higher level of interest in making the asset appreciate in value, since they are only in it for the money.

Imagine a scenario where a neighborhood was to eliminate all renter's. This would force all the investor/owners to sell the homes they own. Most neighborhoods have 15%-30% of the homes in the neighborhood as rental properties. If all these homes came on the market at the same time, and at the same time as people who are trying to sell their home for other reason's, the effect would be a devastating blow to the value of all the houses.

So - what should you do with this information I just laid out? Everyone can have a positive impact just by talking. Talk to your friends, talk to your neighbors. If you do not not have an HOA in your personal neighborhood, maybe a friend does. Create your own buzz about how renter's and investor's add value to all residential neighborhoods. People do not always think through an issue before making a decision, they go with what they hear on the street. You are a person on the street, so change the views.

There are many people where home ownership is not right. Don't try to talk your friends into buying a home for their own residence if it is not right for them. I have told many friends, keep renting, but become a landlord, it has worked out well for many.

I would love to hear your thoughts on this post. Click on the comments link and send me a note.