MacFarlane Real Estate, Inc.

Do you own a real estate investment?  Are you in default on your loan?  Be aware that most lenders have a clause in the loan documents that allows for an absolute assignment of rents when the borrow is in default.  The lender files a Notice of Default and then, the lender intercepts the rents before the owner of record can collect.  If the owner tries to interfere, the owner could be liable for the attorney’s fees to get an injunction against the owner collecting rents.

The typical clause is as follows:  “In the event of a default, lender shall be entitled to accelerate all sums due under the loan secured by deed of trust and is authorized to enter into and upon the property for the purposes of collecting the rents, issues and profits from the property.”

At MacFarlane Real Estate, we often take control of a property before the trustee sale (foreclosure).  Basically, once the Notice of Default is filed, MacFarlane Real Estate seizes the rental income for our hard money clients.  At this point, the borrower has to make up the payments owed without help from the rental income.

In college at UC Davis, I began to get interested in investing and making money.  I read books about the stock market and specifically became fascinated with Warren Buffet and Berkshire Hathaway.  I admired Buffet’s basic approach to investing.  He looked at the underlying numbers of a company, not the glamour of the hottest new tech stock.  Buffet never cared what the next guy would pay for a company.  Buffet looked to make money on the cash flow.  Well…   Apply that principle to real estate.

If an investor looks purely at the numbers (Rental Income Verses Expenses) of an investment property, apartment buildings in low-income areas are shining jewels!  That’s right!  The money is in the hood!  Haven’t you heard of “slumlords” making tons of money?  Well, I don’t suggest being a slumlord.  But, I do suggest looking at the numbers of a low income apartment building in comparison to other investments. 

Let’s look at three scenarios; a single family home, a Class A 4-Plex, and a 14 Unit Apartment Complex in a low income area.  All three properties are worth $1,000,000.  A single family home worth $1,000,000 is likely to rent for about $3,500.  4 Units in a nice area of Pasadena are likely to rent for about $1,600 each, for a total of $6,400 of income.  A unit in a low-income area is likely to rent for about $900 per unit, with 14 units… there is a total income of $12,600.  

It is definitely more work to manage a 14 unit low-income apartment building than a 4 unit class A apartment.  Turn that work over to a professional management company for 6% of gross rents!  As an investor, you probably don’t want to manage any apartment building, class A or low-income.

What would Warren Buffet do with $1,000,000?  I think he would prefer low-income apartments! 

Let me preempt some of the normal resistance to low-income apartments. 

“Low Income tenants are harder on apartment units.”  Thats true!  However, less expensive maintenance and repairs are acceptable in low income apartment buildings.  The expense is only slightly higher in a low income apartment building. 

“I will have more evictions and turn-over.”  Go Section 8.  Have the government pay the rent and the tenants will practically never leave.  Little evictions and little turn-over.  In fact, the class A  apartment has turn-over because people end up buying houses, students graduate, etc… 

“I invest in commercial properties with business as tenants because they are professional and take care of my property.”  Businesses are failing.  The vacancy factor is sky high.  Businesses are not paying their rent on their office/retail space.  However, the owners are doing everything they can to pay for their home!  

Apartment deals start at about $500,000, making the investment accessible to many!  MacFarlane Real Estate, Inc. is finding investment properties that are great deals.  If you would like a complimentary property search, just call!  We are attorney-brokers that provide legal review and brokerage for the same brokerage commission.  Buy an apartment through us and you get the first year management for free!

Of course, an apartment owner’s main source of monthly income generated from the property will be rent collection. However, there are alternative ways to generate additional income that may just transform your investment from a “break-even” asset to a profitable one.

Laundry Income

Laundry machines on site will consistently drive more dollars per month to your investment. There are a handful of competitive and proven laundry companies that will not only service the machines and collect coins–but they will also provide the machines themselves and possibly pay you “door money” (dollar amount per unit) to sweeten the deal. Of course, these companies have to make their money as well. Typically, the laundry company has several profit-sharing plans it will offer depending on the size of the building.

Cell Tower Licensing

Another avenue for additional income is the issuing of a license or lease for a cellular tower to be placed on the property of an apartment or commercial building. The space consumed could be as small as 10′ by 10′. As we all know, cell phones are not going away and the required cell phone towers need a place to hunker down. Depending on the cellular company, it is not uncommon to receive an additional $750 to $1000 per month for the placement of a cell phone tower at a property.