Roth&Co’s latest video series: Real Estate Right Now.

Presented by Alan Botwinick and Ben Spielman, co-chairs of the Roth&Co Real Estate Department, this series covers the latest real estate trends and opportunities and how you can make the most of them. This episode discusses critical valuation metrics used to calculate the potential of an investment property.

Watch our short video:

Investing in real estate can be profitable, rewarding and successful. At the same time, the real estate investment industry is also demanding, competitive and very often, risky. Success requires a combination of knowledge, organization and determination, and while this article may not be able to supply some of those requirements, it will help increase your knowledge about how to initially assess a real estate investment. Here are three useful tools to help calculate the potential of an investment property:

o Gross Rent Multiplier (GRM)
o Price Per Unit (PPU)
o Capitalization Rate (Cap Rate)

Gross Rent Multiplier (GRM)
When an investor considers buying a commercial or rental property, he’ll need to know how long it will take to earn back his investment. The GRM is a simple calculation that tells us how many years of rent it will take to pay off the cost of an investment purchase. The GRM formula compares a property’s fair market value (the price of the property) to its gross rental income.

Gross Rent Multiplier = Purchase Price / Gross Annual Rental Income

The result of the calculation represents how many years it will take for the investor to recoup the money he spent on the purchase of the property. The lower the gross rent multiplier, the sooner the investor can expect to get his money back.

Calculating an investment property’s GRM is not complex and will result in a useful metric, but in practicality, it does not consider operating costs such as the debt service coverage, the property’s maintenance expenses, taxes, local property values and other important factors that strongly impact the profitability of an investment
Experienced investors use the GRM metric to make quick assessments of their opportunities, and to quickly weed through their options. A high GRM may serve as a red flag, directing the investor to look elsewhere and spend more time analyzing more optimal options.

Price Per Unit (PPU)
Another tool in the investment arsenal is the PPU, or Price Per Unit. This calculates just that – the price per door on your investment property. The calculation is simple:

Price Per Unit = Purchase Price / Number of Units

In other words, the PPU is the amount the seller is asking per unit in the building. The PPU can provide a broad view of the market and can give you a good idea of how one property compares to another. The downside of the calculation is that it does not determine the ROI or Return on Investment. PPU does not take any other features of the property into consideration, so its usefulness is limited.

Capitalization Rate (Cap Rate)
The Cap Rate is a realistic tool that considers an investment’s operating expenses and income, and then calculates its potential rate of return (as opposed to the GRM, which looks only at gross income). The higher the Cap Rate, the better it is for the investor. Why is it realistic? Because the Cap Rate estimates how profitable an income property will be, relative to its purchase price, including its operational expenses in the computation.

Capitalization Rate = Net Operating Income / Purchase Price

Like any other calculation, the Cap Rate will only be as accurate as the numbers applied. If a potential investor under- or overestimates the property’s operational costs or other factors, the calculated Cap Rate won’t be accurate.

There is no one-size-fits-all calculation that will direct an investor to real estate heaven. However, utilizing basic tools like the GRM, PPU and Cap Rate will give an investor a broad view of the investment’s potential. Using these tools to jumpstart the due diligence process can help the investor determine whether further research into the investment is warranted and what a property’s potential for profit may be.

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This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

If you’re still around at this point of 2020, you’re probably expecting something crazy to happen. Will there be a release of a new and improved COVID-20? Will there be a civil war when half the country doesn’t like the election outcome? Are we in for a zombie apocalypse, perhaps?

While we do know that crazy stuff can happen, we can never predict it.

Financial media on the other hand, lives on predictors and prognosticators.

Every day, talking heads come onto CNBC and Bloomberg to gab about and predict the future of the economy, the stock markets and more. (In all honesty, they know nothing. But hey, something’s gotta fill their programming.)

We don’t like predictions because we know they don’t actually represent the truth. And even if they did, that information might not be as helpful as you’d think. Just imagine having a time machine where you could see future news, but not its financial outcome. All you’d need to do to know how the economy and stock market would look, is interpret the news.

So, it’s January of 2020, and you check into your magical machine. Alas, you see that a pandemic will be unleashed into the world, where air-travel would come to a halt, live sports would take a total sabbatical and the entire globe would be on an obligatory home confinement for months. You see that the virus will leave forty million Americans jobless, millions of people infected, and hundreds of thousands – dead.

Okay, now  what would you do with your portfolio? Probably go to all-cash. Maybe you would buy some gold?

With the benefit of hindsight, cash was probably the worst asset class to be in. Gold did perform very well, but regarding the bulk of your decision, you would have been dead wrong. You would have never predicted that although thousands would die each day from the virus, the stock market would make a new all-time high just a couple of months afterwards.

Just think: If we can’t even predict the financial future knowing the news in advance, we definitely don’t stand a chance without that advantage.

Our take at Equinum is: stop predicting what the future holds. Instead, prepare and be ready for many diverse outcomes, including the crazy stuff.

If you watch financial media, your head should be spinning from all the current predictions coming from all the pundits sitting in their living rooms. (Although their bookshelves of borrowed books do make them look intelligent.)

Will we have hyper-inflation due to all the helicopter money being dropped in the form of stimulus and unemployment benefits, or deflation due to the millions of people out of work?

Will the market retest the March lows, or will the amazing ascent we are currently on, continue?

Will New York real estate have a Humpty Dumpty fall, or is this a once-in-a-life-time opportunity where the king’s horses and men come through?

Again, we don’t predict. But we do need to prepare.

And how do we do that?

Well first and foremost, we want to have an all-weather portfolio. That is, a properly diversified portfolio where you have a mix of asset classes and proper asset allocation.

At Equinum, we have made some changes to our clients’ accounts. We have swapped some of the government bonds in our portfolios to TIPS, which are inflation protected. So, if inflation gets out of control, clients won’t lose purchasing power.

We added some real assets to portfolios, like precious metals and real estate. These tend to do well in cases of inflation.

Income producing companies can also be a good hedge as well.

One more thing to the renters out there: It might be a prudent idea to consider purchasing a home. If we do have a pickup in real inflation, your rent can double over the next decade or so. But if you lock in a mortgage, your price is locked. To sweeten the deal, mortgage rates are the lowest ever recorded by Freddie Mac in a series that goes back to 1971.

If you have personal questions or concerns, please reach out to us at info@equinum.com to set up a call.

Roth&Co is pleased to announce the acquisition of E.C. Ortiz & Co., LLP, an accounting and financial services firm based in Chicago, Illinois, with 45 accounting professionals and over 40 years of experience.

The deal expands Roth&Co’s regional reach to the Midwest, and broadens their service capabilities to include governmental entities among a variety of deep financial specialties. As of July 1st, 2020, E.C. Ortiz will operate under the Roth&Co brand.

The acquisition increases Roth&Co’s headcount to 14 partners and over 160 accounting professionals, with offices now in New York, New Jersey, Illinois and Israel. Roth&Co is the recipient of Inside Public Accounting’s Fastest Growing Firm award in 2019.

Both Roth&Co and E.C. Ortiz carry a respectable legacy of accounting and financial services, with Roth&Co founded in 1978, and Ortiz in 1974. Roth&Co was founded by Abraham Roth to service the accounting needs of local businesses and the nonprofit community. In the decades that followed, Roth&Co expanded to serve growing organizations across the Northeast and the U.S. at large, becoming a full-service solution with departments dedicated to taxation, assurance and advisory services.

The new addition to Roth&Co’s portfolio of businesses provides a strong foothold in the Midwest and adds a slate of real estate, healthcare and government entities to their already robust client base.

“E.C. Ortiz’s sterling reputation, local relationships and specialized services make them the perfect partner for our continuous expansion,” says Zacharia Waxler, co-managing partner of Roth&Co. “The acquisition allows us to continue to innovate and grow with our client community. It’s a win-win both for us, and for our clients,” he continued. “Roth&Co’s resources have just expanded exponentially, while client experience, relationship management and fee structures remain unchanged.”

Ortiz brings extensive experience in federal and state compliance, healthcare compliance and financial audits. “We couldn’t be more excited to join the Roth&Co family,” says Ortiz founder Ed Ortiz, who remains on board as one of the partners of the Illinois location. “We share the Roth&Co commitment to excellent, relationship-based financial services, and see the immediate value in combining resources for the benefit of our teams, clients and communities.”

Explore the site to see how your business can take advantage of our expanded suite of financial services.

• Interest rates are 2.75% for nonprofits and 3.75% for businesses, with a maximum term of 30 years.
• Loans over $200,000 must be guaranteed by an owner with at least 20% interest in the company. We expect this requirement to be waived for schools.
• You can apply for this loan directly on SBA.gov. It is a simple form that can be completed in under 15 minutes.

• Eligible businesses can request an advanced grant of up to $10,000, calculated at $1,000 per employee.
• This grant does not need to be paid back, even if your organization is denied the EIDL loan.
• You do not need to accept the loan to receive the grant.
• If you get an EIDL grant, and later apply for a PPP loan, the EIDL grant will be subtracted from the amount that gets forgiven.

• independent contractors (for whom there is expanded eligibility criteria)
• freelancers
• sole proprietorships, with or without employees
• gig workers
• agricultural businesses

• are self-employed and have no employees; OR
• did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
• experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.