other than being situated in a particular neighborhood or area within the city, the character and condition of the houses alone are almost identical to our A and B Class higher-end rentals. Let’s take a closer look at the Shared Living Model and five reasons it is a via- ble investment option for the savvy real estate investor:

had a legitimate business model. Through that exercise, we have streamlined, automated or outsourced the following common tasks (in addi- tion to others) that are typically related to all single-family and multifamily rentals, but more specifically for the Shared Living Model: >  All forms of communication (appli- cants, tenants and maintenance) >  Documentation (operations manual, policies, checklists, forms, etc.) >  Advertising and unit-showing process >  Application and approval process >  Lease signing >  Rent and deposit collection (no rent closets or chasing money) >  Move-in coordination >  Unit inspection >  Move-out coordination 2 SUPERIOR PRO FORMA RESULTS One of the more obvious benefits to the Shared Living Model is the relative- ly superior pro forma when compared

ket and competency. Results may vary, depending upon factors such as property location, owner-manager skill and compe- tency, among others.) TRADITIONAL LOW-COST MODEL In this scenario, assuming the $30,000 purchase price and additional closing and rehab costs, the total (all-cash) acquisition investment is $42,500. This property rents for $600 per month. Related expenses are shown in the chart. Many investors do not account for repair and maintenance (10 percent) expenses, and even more fail to allocate a reserve for capital expenditures. Such planned expenditures will cover the future replacement of a property’s aging components including appliances, roof, etc. In this example, we have allocated a fairly conservative 25 percent, or $150 per month. Based upon this pro forma, the cash flow results in a meager $144 monthly or $1,728 for the year. The cash-on-cash return of 4.1 percent isn’t the investment return one would hope



In our experience, the key component of a successful Shared Living Model is a well-defined repeatable system. First, it’s important for investors to recognize that any business—real-estate-related or not—should be treated as a business. Whether a real estate investor owns one unit or 100, developing a system with repeatable processes is a necessity. Second, a system must be implemented to manage the business, or the business will certainly manage the owner! The business of real estate can get out of hand quickly and overwhelm even the most experienced investor. Trust us, we know this firsthand. It’s no secret that, generally speak- ing, lower-cost properties require more attention from the owner or manager. Through years of experience, just as we were able to do with our A/B Class portfolio, we analyzed each phase of the room rental cycle, from advertising and tenant screening to move-out and deposit disposition. The goal was simple. First, address each of the challenges associated with the standard rooming house such as tenant hassles, chasing rent, late-night calls, evictions, etc. Second, build a system that would mitigate as many of the issues as possible. Then, if the system worked, we


to a traditional $30,000 buy-and-hold investment. To better understand the differences in cash flow and ROI, let’s analyze a pro forma of a property in our market, Raleigh, N.C., using actual numbers that work. The accompanying chart illustrates how three different strategies affect the numbers. (Note: Pro forma numbers in the chart reflect our current rental portfolio, mar-

to achieve. This scenario serves as an ex- ample of how many new investors can be surprised by the harsh reality and chal- lenges of acquiring $30,000 properties. SELF-MANAGED/SHARED LIVING MODEL The self-managed option is the sweet spot of the Shared Living Model for the fairly experienced investor. We suggest owner-managers have a minimum of

20 | think realty magazine | mar :: apr 2016

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