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5 CRE Metrics Every Successful Investor Needs To Know – Part V

Find out how financial leverage – positive, neutral and negative – impacts a property’s cash-on-cash return and why it’s so important to a property’s value.

The post 5 CRE Metrics Every Successful Investor Needs To Know – Part V appeared first on MarshallCf.

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Before you can analyze the merits of a for-sale listing you need to have a basic understanding of the property’s numbers.  By that I mean you need to thoroughly understand:

  1. How a property is valued
  2. How a loan amount is calculated
  3. How a property’s cash-on-cash return is calculated
  4. How loan amortization impacts a property’s cash-on-cash return
  5. How leverage (the amount of debt borrowed to purchase the property) affects a property’s cash-on-cash return

“In your sleep”

You not only need to know the importance of these numbers, but you need to know how to do these calculations “in your sleep.”  They need to become second nature to you.

In the first part of this five part series we discussed how a property is valued. In the second part of the series we discussed how the loan amount is calculated.  The first two CRE metrics admittedly were very basic but absolutely necessary for a foundational understanding of CRE underwriting.  The third part of the series, how a property’s cash-on-cash return is calculated, was an introduction to that topic.  It was anything but basic.  We discussed the important difference between Return on Investment and Return on Equity.  The fourth part of the series discussed how loan amortization impacts a property’s cash-on-cash return.   The fifth and final metric all successful real estate investors should know “in their sleep” is how financial leverage affects a property’s cash-on-cash return.

CRE METRIC #5 – HOW LEVERAGE AFFECTS A PROPERTY’S CASH-ON-CASH RETURN

Let’s begin with the basics. Do you understand what I mean when I say leveraging a property? It means the buyer is using debt to help purchase the property. And the more debt the borrower puts on his property, the more he is leveraging the property. In other words, a property that has a 65% LTV loan is more leveraged than a property with a 50% LTV loan. And a property with a 75% LTV loan is more leveraged than a property with only a 65% LTV loan.

Lowering the interest rate or lengthening the amortization improves the property’s cash-on-cash return. Why? Because in both examples, the monthly mortgage payment is reduced. And reducing the monthly mortgage payment increases the property’s cash flow after debt service (CFADS). Right?

So what does increasing the loan amount (adding more leverage) do to the property’s cash-on-cash return?

A. It increases the cash-on-cash return
B. It decreases the cash-on-cash return
C. It has no impact on the cash-on-cash return
D. Not enough information to make a determination

The answer is D. It depends. It depends on whether we are in a positive, neutral or negative leverage environment.

The Impact of Positive Leverage

For the past 25 years we have generally been in a positive leverage environment. By that I mean, if a borrower added another dollar of debt when financing his rental property, it would have a positive impact on the property’s cash-on-cash return (COCR). The more the property was leveraged, the better the return. Purely from a financial return point of view, it has made perfect sense over these years to add as much debt as possible when financing a rental property.

The Impact of Negative Leverage

Occasionally, the real estate market enters into a “perfect storm” scenario where cap rates continue compressing while interest rates increase dramatically. When these two factors converge a negative leverage environment results. By that I mean, the more a property is leveraged, the worse its COCR.

This “perfect storm” scenario existed for much of 2018. Cap rates had been slowly but steadily compressing ever since the Great Recession of 2009. But it didn’t matter to the average investor because interest rates during this time had slowly but steadily declined as well. Real estate investors could pay more for a property because the steady decline in interest rates promoted a healthy COCR.

But this all changed beginning in the fall of 2017. From October of 2017 through October of 2018 interest rates zoomed up 100 basis points, i.e., interest rates rose a full one percent. While this rise in interest rates was going on, cap rates held steady. Sellers were unwilling to lower their prices assuming buyers would capitulate to their asking prices because it was still a seller’s market.

During this time I had a client who was in the process of purchasing a NNN lease, single tenant building. The property had Net Operating Income of $227,369. The question I asked my borrower was how much debt did he want to finance on his purchase? I showed him four financing options: No leverage, 50%, 65% and 75% leverage. Shown below are the results of leverage on the property’s COCR. Each column represents one of the four financing options.

negative leverage

An Example of Neutral Leverage

Owning the property debt free resulted in a COCR of 6.2%. And as you can see the more debt that was added to finance the property, the lower the property’s COCR.
Being curious, I wondered at what interest rate would adding debt result in neutral leverage? By neutral I mean it would not help or hurt the property’s COCR. It turns out in this particular case that an interest rate of 4.65% resulted in neutral leverage as shown below.

neutral leverage

An Example of Positive Leverage

Some of you may be thinking that adding debt of any amount will always have a negative impact on the property’s COCR. Not so. To prove my point, shown below I lowered the interest rate to 4.0%.

positive leverage

As you can see, with a 4.0% interest rate, the more you leverage the property, the higher, the COCR.

How a Negative Leverage Environment Occurs

Let me repeat myself. (I’m old, that’s what old people do.) A negative leverage environment is a direct result of rapidly rising interest rates while capitalization rates remain the same. During the twelve month window, from October 2017 to October 2018, interest rates rose a full point. Everything being equal, when interest rates rise, mortgage payments increase which reduces the property’s cash flow after debt service (CFADS). A lower CFADS reduces the property’s COCR. If this trend were to continue long enough, buyers will stop buying. It’s as simple as that.

To reverse this trend, either cap rates must rise (i.e., property values decline) to compensate for higher interest rates or interest rates need to rapidly decline to where they once were. Fortunately for the real estate market, interest rates have declined dramatically. As of this writing (August 16, 2019) interest rates have declined 150 basis points since October of 2018. That’s huge!!

Why Should We Care?

Why should we care that we are no longer in a negative leverage environment? A continuing negative leverage environment would have been one more nail in the coffin of the current real estate market cycle, to go along with:

  • Moderating rent increases
  • More product coming online which will slowly increase vacancy rates
  • Rent concessions in some neighborhoods for the first time in years
  • More regulations to reign in the rights of property owners

Fortunately, the real estate market dodged a bullet to the forehead when rates plummeted, and it is now once again in a positive leverage environment.

That’s my opinion.  I welcome yours.  What are your thoughts about the impact of positive, neutral and negative leverage on investing in commercial real estate?

Doug Marshall is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

The post 5 CRE Metrics Every Successful Investor Needs To Know – Part V appeared first on MarshallCf.

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5 CRE Metrics Every Successful Investor Needs to Know – Part IV

To analyze the merits of purchasing a for-sale listing you need to understand the property’s numbers. Find out the five CRE metrics you need to know “in your sleep.” This week we discuss how the amortization method affects a property’s cash-on-cash return.

The post 5 CRE Metrics Every Successful Investor Needs to Know – Part IV appeared first on MarshallCf.

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Before you can analyze the merits of a for-sale listing you need to have a basic understanding of the property’s numbers.  By that I mean you need to thoroughly understand:

  1. How a property is valued
  2. How a loan amount is calculated
  3. How a property’s cash-on-cash return is calculated
  4. How loan amortization impacts a property’s cash-on-cash return
  5. How leverage (the amount of debt borrowed to purchase the property) affects a property’s cash-on-cash return

“In your sleep”

You not only need to know the importance of these numbers, but you need to know how to do these calculations “in your sleep.”  They need to become second nature to you.

In the first part of this five part series we discussed how a property is valued. In the second part of the series we discussed how the loan amount is calculated.  The first two CRE metrics admittedly were very basic but absolutely necessary for a foundational understanding of CRE underwriting.  The third part of the series, how a property’s cash-on-cash return is calculated, was an introduction to that topic.  It was anything but basic.  We discussed the important difference between Return on Investment and Return on Equity.  I recommend that you review that article before proceeding with today’s discussion on loan amortization as the cash-on-cash return example provided in the previous article is carried forward into today’s presentation.

CRE METRIC #4 – HOW LOAN AMORTIZATION IMPACTS A PROPERTY’S CASH-ON-CASH RETURN

Amortization is the gradual pay down of a mortgage with regular payments over a specified period of time.  The loan amortization period sets the amount of periodic payments required to pay off a debt obligation.  Each payment is used to pay interest on the loan and reduce its principal.  That is a textbook definition of amortization.  However financing commercial real estate has a few unique caveats that need to be mentioned.

Bullet Loans

Almost all commercial real estate loans are bullet loans.  A bullet loan is a loan that requires a balloon payment at the end of the term.  A typical real estate loan is a 10-year fixed rate loan amortized over 25 or 30 years.  At the end of the 10th year the loan is due and the principal balance must be paid.  So what does the owner do at the end of the 10th year to pay off the loan?  He either refinances the property or he sells it.

As a result, very few commercial real estate properties are without debt.  It really makes no sense to own a property free and clear because it adversely impacts your ROE.  In other words, to optimize your property’s ROE, it’s typically better to leverage your property with a modest amount of debt than to own a property without any debt.

Actual/360 vs 30/360 Amortization Methods

Historically, mortgage payments have been calculated based on a 30/360 basis. In other words, it is assumed that each month has 30 days and therefore each year 360 days. This allows for easy calculation of interest rates and amortization schedules. Your calculator or computer uses a 30/360 calculation for determining mortgage payments.

Actual/360 payments became popular in the 1990s. Not surprisingly, it is a way to make an interest rate sound better than it actually is.  This amortization method has the borrower paying interest for the actual number of days in a month. This results in the borrower paying interest for 5 or 6 additional days a year. A lender using an Actual/360 amortizing method can quote a lower spread and rate on a transaction but actually collect the same or greater amount of interest each year.

Interest Only Loans

To entice borrowers to borrow from them, some lenders offer interest only (I/O) loans.  An I/O loan is a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period.

It is not uncommon for lenders to offer two or more years of interest only with the remaining term of the loan being amortized.  Why would borrowers like I/O?  As you will see in the example that follows, I/O is a great boost to a property’s COCR during the interest only phase of the loan.

An Example of the 3 Amortization Methods

Shown below are examples of each type of amortization method.  In each case, the loan amount is $684,000 and the interest rate is 5.0%.

To summarize the three amortization methods are:

  1. 30/360 – Interest calculated on 30 day months
  2. Actual/360 – Interest calculated on actual days in the month
  3. Interest Only – No amortization of the loan

amortization

amortization

amortization

amortization

Summarized above are the results for each of the amortization methods.  Notice that the annual mortgage payments are identical for the 30/360 and Actual/360 amortization methods.  But notice that the Actual/360 amortization method results in slightly more interest expense than the 30/360 amortization method. This is due to calculating the interest expense based on 365-day year rather than a 360-day year like the 30/360 method. More interest expense for the Actual/360 method means less principal pay down.

The Benefit of Interest Only Loans

But more importantly notice that the Interest Only/No Amortization method results in significantly less annual mortgage payments, $34,200 compared to $47,983 for either of two amortization methods.  So let’s revisit the ROE calculation.

Recall that original Return on Equity (ROE) was calculated to be 3.8% based on cash flow after debt service (CFADS) of:

$60,000 NOI – $48,000 DS = $12,000 CFADS

That is true assuming the loan is amortized by either the 30/360 method or the Actual/360 method.  But the CFADS changes significantly if the mortgage payment is Interest Only as shown below:

$60,000 NOI – $34,200 DS = $25,800 CFADS

With Interest Only the property’s ROE is:

$25,800 NOI ÷ $316,000 Owner’s Equity ($1,000,000 Value – 684,000 Existing Loan Balance = 8.2%

So which would you prefer?  A 3.8% ROE or an 8.2% ROE?  It seems like a no brainer to me.  And that is why an interest only loan for the first couple of years should be preferred over an amortizing loan.

Those are my thoughts.  I welcome yours.  What is your opinion of interest only loans?

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out at Barnes & Noble.

The post 5 CRE Metrics Every Successful Investor Needs to Know – Part IV appeared first on MarshallCf.

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5 CRE Metrics Every Successful Investor Needs To Know – Part III

What is the most important metric for deciding whether or not to purchase a property?  A property’s cash-on-cash return (COCR).  Find out why.

The post 5 CRE Metrics Every Successful Investor Needs To Know – Part III appeared first on MarshallCf.

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Before you can analyze the merits of a for-sale listing you need to have a basic understanding of the property’s numbers.  By that I mean you need to thoroughly understand:

  1. How a property is valued
  2. How a loan amount is calculated
  3. How a property’s cash-on-cash return is calculated
  4. How loan amortization impacts a property’s cash-on-cash return
  5. How leverage (the amount of debt borrowed to purchase the property) affects a property’s cash-on-cash return

“In your sleep”

You not only need to know the importance of these numbers, but you need to know how to do these calculations “in your sleep.”  They need to become second nature to you.

In the first part of this five part series we discussed how a property is valued. In the second part of the series we discussed how the loan amount is calculated.  The first two CRE metrics admittedly were very basic but absolutely necessary for a foundational understanding of CRE underwriting.  Today, we will discuss how to calculate a property’s cash-on-cash return.

CRE Metric #3 – How a Property’s Cash-on-Cash Return Is Calculated

What is the most important metric to use in deciding whether or not to purchase a property?  I suppose this question is open for debate but for me it’s not. Assuming the perceived risk between investment alternatives is more or less the same, then in my opinion, the most important metric for purchasing a property is its cash-on-cash return.  There are many other metrics that are also worth considering but they are secondary to a property’s cash-on-cash return.

So how is cash-on-cash return calculated?

Assume the following underwriting parameters:

  • $1,000,000 purchase price
  • $684,000 loan amount
  • $60,000 NOI
  • $4,000 per month mortgage payment

So let’s do the math.  The cash flow after debt service (CFADS) is:

$60,000 NOI – ($4,000 per month DS x 12 months) = $12,000 CFADS annually

The total cash invested in this property is the purchase price less the loan amount or $1,000,000 – $684,000 = $316,000 total cash invested (TCI)

Therefore, the cash-on-cash return (COCR) is:

$12,000 CFADS ÷ $316,000 TCI = 3.8% COCR

Is the projected COCR acceptable?

So the first question to ask yourself, “Is the projected COCR acceptable?”  It depends.  If you live in New York City or most places in California, a COCR in this range would be unheard of.  Investors in these two locations rely almost solely on appreciation to justify buying a rental property.  Now if you lived in the Midwest, it’s not uncommon for investors to experience COCRs at or near double digits.  So why aren’t we all buying real estate in the Midwest?  Because property appreciation in this region, the second benefit of owning real estate, is generally modest at best, counterbalancing the excellent COCRs.

So again, it all depends.  For me, a 3.8% COCR is borderline.  As a rule of thumb, a property needs to project a COCR of 4% or greater before I would make an offer.  However, there is one very important exception: If the property shows significant upside potential in the first couple of years then I very well could consider a modest 3.8% cash-on-cash return acceptable in the first year of operation.  Other seasoned real estate investors may think otherwise, and I wouldn’t feel the need to argue with them.  It’s all a personal choice.

Our buyer decides to buy the property at the asking price of $1,000,000 because he believes the property is being poorly managed.  With a new on-site manager reporting directly to him he strongly believes the property’s NOI in the first year will increase by $6,000 to $66,000.  Assuming that is true the property’s cash flow after debt service increases to:

$66,000 NOI – ($4,000 per month DS x 12 months) = $18,000 CFADS annually

And the property’s cash-on-cash return is now:

$18,000 CFADS ÷ $316,000 TCI = 5.7% COCR

That in my opinion is a very acceptable first year return on the buyer’s equity.

Two ways to calculate COCR

Before we move on to the next topic, I need to explain something that I glossed over.  Did you catch it?  When I calculated the total cash invested (TCI) I subtracted the loan amount from the purchase price.  In this example the total cash invested in this property was $316,000 ($1,000,000 – $684,000).  But is that true?  No, not really.  What about the closing costs?  What about the loan or mortgage broker fee, pro rata share of the property taxes and the title and escrow charges just to name some of the more significant closing costs?  These costs are not small and together they make a tidy sum.  So in reality the total cash invested is:

Purchase Price – Loan Amount + Closing Costs = Total Cash Invested

Let’s assume that closing costs total $20,000.  Then the total cash invested is $336,000, not $316,000.  And how would that affect COCR?

$18,000 CFADS ÷ $336,000 TCI = 5.4% COCR compared to 5.7% without the closing costs included

So adding in the closings costs to the TCI does have a small effect on the property’s COCR.  So why didn’t I include closing costs in the total cash invested?  Was it because I’m lazy or that it’s not important?  No, not at all.  There is a reason for my excluding the closing costs, which is a very important concept to understand

Return on Investment vs Return on Equity – Which is Better?

A real estate investor can choose to focus on a property’s Return on Investment or they can focus on property’s Return on Equity.  So how are these two metrics calculated?  And more importantly, how are they different?Return on Investment (ROI) measures the gain or loss generated on an investment relative to the amount of money originally invested, including closing costs.How to calculate return on equity or COCR

Return on Equity (ROE) measures the gain or loss generated on an investment relative to the amount of equity in the property.

So the first time we calculated the property’s COCR we were calculating ROE.  The second time we calculated the property’s COCR we were calculating ROI.

My preference between the two metrics is Return on Equity.  Why?  My answer is easier to understand by looking at the property’s return several years in the future.  So let’s assume the value of this property seven years from now is $1,900,000 and that the property’s NOI at that time is $100,000.  In seven years the loan has been amortized down to $568,762 from the original loan balance of $684,000.  What is the property’s COCR, based on ROI and ROE?

Let’s begin by re-calculating the property’s cash flow after debt service

$100,000 NOI – $48,000 DS = $52,000 CFADS a.k.a. Owner Distributions

Now let’s calculate ROI and ROE.

Return on Investment (ROI)

$52,000 CFADS ÷ $336,000 TCI = 15.5%

Return on Equity (ROE)

$52,000 CFADS ÷ $1,331,238 Owner’s Equity ($1,900,000 Value – $568,762 Existing Loan Balance) = 3.9%

The property’s ROI is 15.5%.  What does that mean?  It means the return the buyer is now receiving on his original investment of $336,000 is a healthy 15.5%.    That’s a very good return, but it’s also misleading and here’s why.  On the face of it, a 15.5% return means you should be very happy with your investment.  Right? Who wouldn’t be happy with a 15.5% return?  So the happy investor would be prudent to leave this property alone and let it continue as is.  Correct?  Hold on.  Not so fast.

Now let’s analyze the property’s ROE of 3.9%.  What does that mean?  It means the owner is receiving a below average 3.9% return on the equity he currently has in the property.  The question this mediocre return begs to ask is this: Should I consider either refinancing this property or selling this property sometime soon?  The answer is yes.

Why ROE is better than ROI

For me, when the ROE dips below 4% I need to take some action to boost the property’s return.  Does that make sense?  But if you are measuring a property’s success based on ROI, you’ll never see the need to take action.  Why?  Because the property’s ROI will continue to improve as the property’s NOI increases over time while the amount of the original investment stays the same.  So instead of a 15.5% ROI, over time this property’s ROI will increase to 18%, 20% or more while the ROE continues to decline.

To illustrate my point, shown below is a hypothetical projection of the property’s NOI and property value.

Notice that the property’s ROI continues to increase over time.  And notice the property’s ROE peaked in Year 4 and then slowly declines thereafter.  In Year 7 the property’s lower ROE suggests some action needs to be taken to improve its return.

This may suggest that the property should be refinanced.  When a property is refinanced the owner re-leverages the property with more debt.  It benefits the owner two ways: 1) he gets cash back from the refinance that he uses as he chooses; and 2) a re-leveraged property in most instances will improve a property’s ROE.  Sometimes the owner realizes that the best course of action is to sell the property and if the proceeds of the sale are re-invested in another rental property, then that too will likely result in a better ROE than the status quo.

And that is why I prefer using ROE over ROI.  Over time, ROE has the potential of helping the owner make informed decisions about what should be done to maximize the property’s return.  ROI does not.

Notice that over the 10-year projection the property’s ROE averages about 4%.  And yet the owner’s equity in the property increased over this same time period by almost $1.3 million.  Even with a modest ROE the investor’s equity in his property increased 5 times over the holding period.  Wow!  Not too shabby!  During times of rising property values, a property’s ROE may still be modest as is shown in this example but result in exceptional equity grow.

Another Advantage of ROE vs ROI

One final thought about the chart above.  In this example the property’s capitalization rate has compressed over the ten-year projection from 6.0 percent in year 0 to 5.25 percent in year 10.  This is exactly what has happened to real estate since the Great Recession.  Cap rates have slowly but steadily compressed since 2009.  If the property had maintained a 6 percent cap rate over this time period the property would only be valued at $1,821,000 in year 10, not $2,081,000 as shown in the chart above and the property’s ROE would have improved to 4.7%, not 3.9%.

The point I’m trying to make is this: Regularly monitor your property’s ROE to determine if there is a trend in this important ratio.  If so, it may be suggesting you need to take action to maintain an acceptable ROE for your property.

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out at Powell’s.

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5 CRE Calculations Every Investor Needs to Know – Part II

To analyze the merits of purchasing a for-sale listing you need to understand the property’s numbers. Find out the five CRE metrics you need to know “in your sleep.” This week we discuss how the DSCR sizes the loan.

The post 5 CRE Calculations Every Investor Needs to Know – Part II appeared first on MarshallCf.

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Before you can analyze the merits of a for-sale listing you need to have a basic understanding of the property’s numbers.  By that I mean you need to thoroughly understand:

  1. How a property is valued
  2. How a loan amount is calculated
  3. How a property’s cash-on-cash return is calculated
  4. How loan amortization impacts a property’s cash-on-cash return
  5. How leverage (the amount of debt borrowed to purchase the property) affects a property’s cash-on-cash return

“In your sleep”

You not only need to know the importance of these numbers, but you need to know how to do these calculations “in your sleep.”  They need to become second nature to you.

In the first part of this five part series we discussed how a property is valued.  Today we discuss how the loan amount is calculated.  For some of you, this series will be very basic.  You mastered these five real estate calculations long ago.  You truly can do these calculations “in your sleep.”

However as I went through the process of writing these five articles I was surprised how many little tidbits I had forgotten, or maybe not forgotten but I hadn’t fully appreciated their significance.  So for seasoned real estate professionals and investors don’t dismiss these articles out of hand as unworthy to read.  I’m confident that there is content in these five blog posts that you will find of value.

CRE METRIC #2 – HOW THE LOAN AMOUNT IS CALCULATED

Calculating a property’s loan amount requires the use of a financial calculator. I have both a handheld calculator and an app on my smart phone. I recommend an HP 10bii financial calculator that you can get on Amazon for $24.99. Yes, you can go cheap and buy the HP 10bii app for $4.99 for your smart phone. You choose which option is best for you, but I much prefer the calculator.

Most loans are limited by the lower of a maximum loan-to-value ratio or a minimum debt service coverage ratio. But before we determine the loan amount based on these two underwriting parameters, we first need to understand the concept of Debt Service Coverage ratio (DSCR).
What is a Debt Service Coverage Ratio (DSCR)?

How to calculate a property’s DSCR

Shown below is how a DSCR is calculated:

DSCR

For example, if the NOI for a property is equal to the total debt service for the property, the DSCR is 1.0. In other words, all the cash flow generated from the property is going towards servicing the debt. What happens if there is a temporary downward blip in the NOI which happens from time to time? Then there is not enough cash flow to pay the mortgage. This is not a good thing is it? In fact, if a property consistently has insufficient cash flow to service the monthly mortgage payment the owner will have to pay the mortgage from other sources of income or lose the property to foreclosure.

Lenders would much prefer an owner consistently pay his mortgage payments on time rather than go through the process of foreclosing on a property. To that end, lenders will require that borrowers have a DSCR greater than 1.0 to minimize the chances the borrower can’t pay his mortgage payment. Depending on the lender and the property type, I’ve seen DSCRs as slow as 1.15 and as high as 1.35, occasionally higher.

So what does a 1.25 DSCR mean? It means that that for every $1.25 of cash flow generated by the property, only $1.00 of it can be used for servicing the debt. The remaining cash flow goes into the borrower’s pocket to be used as he deems necessary including as a rainy day fund when the NOI is less than the monthly mortgage payments.

How to size the loan based a lender’s DSCR

Shown below is the same formula as the previous one, except now we are solving for debt service.

DSCR

To illustrate, let’s assume you are purchasing a property for $1,000,000 and the lender uses the following criteria for calculating the loan size:

  • 70% Loan-to-Value (LTV) ratio, or
  • 1.25 Debt Service Coverage (DSCR) ratio whichever is less

Calculating the LTV loan amount is simple. It’s 70% of the purchase price or $700,000. Calculating the loan amount based on a 1.25 DSCR is bit more complicated requiring the use of a financial calculator.

It’s a two-step process:

Let’s assume the proposed loan terms offered include a:

  • 5.0% interest rate
  • 25-year amortization

How to calculate the maximum monthly mortgage payment

Let’s also assume that the property has a $60,000 NOI. You now have enough information to calculate the monthly mortgage payment which is the first step in the process:

Total Debt Service = $60,000 NOI ÷ 1.25 DSCR = $48,000

Monthly Mortgage Payment = $48,000 ÷ 12 months = $4,000 per month

In this case, $4,000.00 represents the maximum monthly mortgage payment that the property can support and still meet the minimum 1.25 DSCR required by the lender.

How to calculate the loan amount

The second step in the process is to solve for the loan amount, where

  • PMT (payment) = $4,000.00
  • N (number of months for amortizing the loan) = 25 years x 12 = 300 months
  • I/YR = 5.0% interest rate
  • Solve for PV (loan amount) = -$684,000 (rounded)

So what’s with the negative outcome? For financial calculations to work, one of the inputs or the outcome needs to be negative. Don’t let that bother you. Just forget about the negative sign. It’s irrelevant. The loan amount in this example is $684,000.

What is the maximum loan size for this property?

So what is the maximum loan amount based on the lower of a 70% LTV or a 1.25 DSCR? A 70% maximum LTV results in a $700,000 loan amount and a minimum 1.25 DSCR results in a $684,000 loan amount. In this case, the loan amount is constrained by the 1.25 DSCR. As you can see, it yields a lower loan amount of the two financing criteria limiting the loan to $684,000.  And that is how the loan amount is determined.  It is the lower of the maximum LTV requirement or the minimum DSCR requirement.

Those are my thoughts.  I welcome yours.

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out at Barnes & Noble.

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5 CRE Calculations Every Investor Needs to Know – Part I

To analyze the merits of purchasing a for-sale listing you need to understand the property’s numbers.  Find out the five CRE metrics you need to know “in your sleep.”

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Before you can analyze the merits of a for-sale listing you need to have a basic understanding of the property’s numbers.  By that I mean you need to thoroughly understand:

  1. How a property is valued
  2. How a loan amount is calculated
  3. How a property’s cash-on-cash return is calculated
  4. How loan amortization impacts a property’s cash-on-cash return
  5. How leverage (the amount of debt borrowed to purchase the property) affects a property’s cash-on-cash return

“In your sleep”

You not only need to know the importance of these numbers, but you need to know how to do these calculations “in your sleep.”  They need to become second nature to you.

This is the first part of a five part series on the five real estate calculations every investor needs to know.  For some of you, this series will be very basic.  You mastered these five real estate calculations long ago.  You truly can do these calculations “in your sleep.”

However as I went through the process of writing these five articles I was surprised how many little tidbits I had forgotten, or maybe not forgotten but I hadn’t fully appreciated their significance.  So for seasoned real estate professionals and investors don’t dismiss these articles out of hand as unworthy to read.  I’m confident that there is content in these five blog posts that you will find of value.

CRE METRIC #1 – HOW A PROPERTY IS VALUED

In the simplest of terms a property’s estimated value is defined as:

So what the heck does that mean?

Net Operating Income (NOI) is the net rental income of a property after operating expenses are deducted.  These expenses should include, among other things, property taxes, insurance, repairs and maintenance, utilities, on- and off-site management costs, general and administrative expenses, etc.  NOI does not include the interest expense from the mortgage payment or depreciation.  Another way of defining NOI is the net cash flow from the property before deducting debt service.

The Capitalization Rate

The Capitalization Rate, better known as the cap rate, is the ratio between the net operating income generated from a property and its current market value.  The cap rate is calculated as follows:

So if you know two of these three factors, you solve for the third.  If you are looking to purchase a property, the seller’s marketing flyer will show the asking price for the property.  At some point in the negotiating process the seller will give you his historical operating statements from which you can determine the property’s NOI.  With these two figures you can then calculate the seller’s proposed cap rate for the property.

For example, if you’re interested in purchasing an apartment with an asking price of $1,000,000 and an NOI of $60,000 then the property has a cap rate of:

$60,000 ÷ $1,000,000 = 6.0%

What does a property’s cap rate mean?

So you now know how to calculate a property’s cap rate but do you know what a 6.0% cap rate means?  Is that a good cap rate for that property or isn’t it? Or a better way of putting it, what is a reasonable cap rate for this property?  And more importantly, who determines what a reasonable cap rate is for a particular property type, its age, its condition and its location?

Ultimately, the market determines what cap rates should be.  It’s a function of the law of supply and demand between willing sellers and willing buyers.  If there are more buyers than sellers, a.k.a, a seller’s market, then asking prices generally increase over time.  And conversely, if there are fewer buyers than sellers (think the Great Recession) values generally decline, sometimes rather quickly.

How are cap rates established?

Cap rates are established by a myriad of investors who decide in each real estate market how much they are willing to pay for an investment property of a particular property type, age, condition and location that generates a specific Net Operating Income.  It’s as simple (or not so simple) as that.

So how do you use cap rates in such a way that it is not just an academic exercise in determining a property’s value?  Let’s assume for a moment, that properties of similar characteristics have cap rates in the range of 6.5%, not 6.0%.  Then you should counteroffer with the following:

$60,000 ÷ 6.5% = $923,000 (rounded)

This is just one real world example of how to use cap rates.  It doesn’t mean the seller will accept your counteroffer, but it does provide justification for a lower price for the property.

The Game Buyers & Sellers Play

At its most basic level the sales process is the seller trying his very best to convince the buyer that the for-sale property has a better NOI than it actually has.  It’s all a part of the real estate sales game.  The seller’s goal is to maximize the sales price by either inflating the NOI as much as is reasonably possible.  Or the seller can achieve the same result by using a cap rate that is below market for his property.  Those are the only two variables he can manipulate.

On the other hand, a seasoned real estate investor is aware of this game.  The first step in the buying ritual for him is to determine an accurate understanding of the property’s NOI. Once he has that figured out, his next step is to determine if there are any realistic adjustments he can make to increase the property’s NOI once he purchases the property.

Are rents below market?  Is the property being poorly managed that if corrected would improve the property’s NOI?  Are operating expenses above normal? If so, are there simple solutions to lowering these expenses within a normal range?  If the buyer makes capital improvements how much could he expect rents to increase after improvements are completed?  These are some of the questions he’s pondering.  If he can find some logical reason for a higher future NOI then it’s possible that the overinflated asking price by the seller may in fact be reasonable.  If not, then the buyer needs to walk away from negotiations if the seller is firm on his price.

Those are my thoughts.  I welcome yours.

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

Mastering the Art of Commercial Real Estate Investing

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When Should You Stop Investing in Real Estate?

I will continue buying and selling real estate as long as it makes rational sense to do so.  But there are 3 reasons when you should stop investing in real estate. Find out what they are.

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Recently I’ve been asked, on more than one occasion, “When should we stop investing in real estate?”  Good question.

As a commercial mortgage broker I have had the privilege to work with several highly successful real estate investors throughout my career.  And I’ve observed that these clients are always seeking out new investment opportunities.  They are continually keeping their eyes and ears open for the next good real estate investment.  It’s their passion.  It’s what “floats their boat.”  So in a sense, I believe you should follow their example and never stop investing in real estate.

Hyper-Supply Phase

That said, the real estate market is cyclical and I believe we are currently in the quadrant called the Hyper-Supply Phase.  This phase is characterized by an increase in new construction resulting in a steady increase in vacancy rates and for the first time in a long time, concessions will begin to creep into some neighborhoods.  Rent growth, though still positive, grows at a much more modest pace.   

Recession Phase

As the real estate market continues to advance, the downward slide at some point in time becomes readily apparent to all and a precipitous drop in real estate fundamentals happens, usually overnight, or so it seems.  When this occurs the real estate market has slipped into the Recession phase.  And the cycle of market emotions moves from anxiety (where we are at the moment) to denial (everything’s fine, just you wait and see), to fear, to desperation, to panic and finally to hopelessness.

No one wants to be in the unfortunate position of having recently purchased an overpriced property prior to this market adjustment.  No one wants to get caught with their pants down but unfortunately some of us do.  It’s like playing musical chairs and you discover you’ve been too slow to find a chair to sit on.

Real Estate Market

My Loser Property

In June of 2007, I purchased my first rental property.  I believe if you could identify the peak of the last real estate cycle it would have been June of 2007.  And because we bought it at the top of the market, that property never performed well.  We simply paid too much for it.  We owned the property for eight years and it limped along until it was sold.

Eventually we sold the property for a modest gain resulting in a 7 percent Internal Rate of Return.  It could have been far worse.  There were a lot of investors who lost their properties because they overleveraged their assets with debt and when the property’s vacancy rate rose these properties couldn’t support the debt.

When will we slip into recession?  I wish I knew.  Anyone who can accurately predict when the real estate cycle is poised to make this transition is a far better prognosticator than I am.

Are you a net buyer or seller of RE today?

Another question asked of me, “Are you a net seller or buyer of real estate today?”  I had to think about that question and to my surprise so far this year I have been a net buyer of real estate.  That surprised me.  But the two new acquisitions have been value-add plays with obvious upside.  Each property had a glaring issue that needed to be resolved.  One was a fractured condo and the other had a vacancy issue.  Both issues were solvable.

I’ve not yet sold a property this year but if someone were to offer me a silly stupid price for a couple of my properties that aren’t cashflowing well at the moment I would gladly sell them.  The rest of my real estate portfolio is doing quite well and I am reluctant to sell these even at overinflated prices.  The cash flow from these other properties will help me get through the next recession when it finally hits.  Again, I’m clueless as to when that will happen.

Three Reasons to Stop Buying RE

So back to the original question, “When should we stop investing in real estate?”  Here are some reasons when we should stop investing.

  • When a realistic pro forma for a proposed purchase no longer yields an acceptable cash-on-cash return. In other words, don’t buy a rental property when the numbers no longer make sense.  Don’t assume that rental rates will continue to rise simply because they have for the past several years.
  • Stop buying when you sense real estate investors are not acting rationally. When you hear words like, “This time is different” realize the folly of such a statement. Those four words have been used to justify some incredibly bonehead purchases.  I remember, prior to the Great Recession, hearing people justify buying single-family homes because everyone knows that home values never go down.  And when the recession hit, home values plummeted.  So much for that theory.
  • Do a vacancy rate breakeven analysis for your purchase. Find out what the vacancy rate for your asset type was at the height of the Great Recession.  I believe for apartments, the worst the vacancy rate ever rose was to twelve percent.  Assuming a 12 percent vacancy rate, how much debt can you leverage the property and still have breakeven cashflow?  If that breakeven analysis results in more equity required at closing than you can afford then don’t buy the property.

Bottomline

I will continue buying and selling real estate as long as it makes rational sense to do so.  There will always be sellers who either mismanage their properties or don’t have a vision for how they can optimize their property’s cash-on-cash return.  When you find one of these properties put the seller out of his misery and buy it from him.  Both of you will be glad that you did.

Those are my thoughts.  I welcome yours.  In your opinion, when should we stop investing in real estate?

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

Mastering the Art of Commercial Real Estate Investing

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8 Indicators It’s Time to Fire Your On-site Property Manager

On-site property managers are generally overworked and under paid. Pay them well. But sometimes it’s necessary to fire them. Find out 8 indicators suggesting it’s time to find a new manager.

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For large multi-tenanted properties to be well managed it requires three levels of oversight.  As the saying goes, “A chain is only as strong as its weakest link” is definitely true for property management.  If any one of these three is done poorly the property’s performance will suffer accordingly.

3 levels of property oversight

The three levels of property oversight are: 1) the on-site manager; 2) the off-site property management company; and 3) the owner.  Smaller properties with less tenants do not need an on-site manager.  But apartments with 20+ units and large retail, office and sometimes industrial properties may need on-sight management.  For these properties, on-site managers will maximize a property’s performance.  So when is it appropriate to fire the on-site manager?

Pay on-site property managers well

Before I answer that question, let me begin by stating once again that on-site managers are generally overworked and underpaid.  Often times, they don’t get the credit they deserve for a well maintained property.  If you have an on-site property manager that is performing their job well, pay them accordingly.  My management philosophy is to pay them 120% of what the going rate is for their position.  You never want to have a good on-site manger quit because they can make a few more dollars working elsewhere.  Not paying them well is truly “penny-wise, pound-foolish.”

8 reasons to fire your on-site property manager

That said, there are eight reasons when you should fire your on-site property manager.  They should be fired when they are:

  1. Consistently not maintaining the property’s appearance.

    A property’s appearance is the first impression a prospective renter has of your rental property.  Is it inviting, or does it leave a poor impression?  The property needs to look clean and neat.  A good on-site manager when walking the property should be in the habit of always be picking up trash that is lying around.

  2. Not following the rental policies to the letter.

    Rent is due on the first and late on the fifth day of the month. No exceptions.  Those who don’t pay on time are always assessed a late fee regardless of reason.  If you don’t consistently charge a late fee you remove the incentive of paying their rent on time.

  3. Not keeping out of control tenants on a “short leash.”

    Every property I’ve ever owned or managed has had at least one problem tenant.  These tenants act as if the rules don’t apply to them.  The on-site manager needs to let these problem tenants know that that is not the case.  If you let problem tenants run roughshod over the property, the good tenants will eventually move out.

  4. Consistently not getting recently vacated units market ready for the next tenant.

    In a tight rental market, a unit that’s sitting vacant because the unit is not ready to show is costing the owner a lot of money in lost rent.

  5. Ignoring maintenance repair requests.

    A colleague of mine once had an on-site manager that he reluctantly fired only to discover she had a drawer full of maintenance requests that she let slide.  Do you want happy tenants?  Make sure maintenance repair requests are completed in a timely fashion.

  6. Consistently poor tenant selection.

    There is more to tenant selection than running background checks, calling previous landlords, etc.  There is also intuitively sizing up the prospective tenant.  I’m not suggesting that on-site manager discriminate based on race, sexual orientation, etc.  I’m not even hinting at that.  What I’m suggesting is that an in-person interview can many times give you insights into a person that can’t be objectively measured by the traditional tenant selection process.  Trust your gut instinct.

  7. Beginning to consider their tenants as their friends instead of their customers.

    You can imagine how this change in thinking can result in all sorts of bad things happening at the property.

  8. Suffering from burnout causing them to stop caring for the property.

    This the saddest reason for firing an on-site property manager.  You never want this to happen.  It’s incumbent on the off-site property manager and/or the owner to recognize the beginning stages of burnout so they can do whatever is necessary for this not to happen.

These are my eight reasons for firing an on-site property manager.  What have I missed?  What would you add to the list?

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

Mastering the Art of Commercial Real Estate Investing

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The Importance of Grit For Succeeding in Life

What is the most important attribute for succeeding in life? A dynamic personality? Working long hours? Nope. Grit is. Find out why.

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We’ve all been discouraged at one time or another. Even the big boys, those at the top of the food chain in commercial real estate, have had their setbacks. Those of us who make a living on commission income know the euphoric highs of closing a lucrative transaction. We’ve also experienced many disappointments. I know I’ve had my share.

My Early Years on Commission

I remember my early years on commission. I had no safety net. My spouse was a stay-at-home mom. My very first year as a commercial mortgage broker, I worked long hours only to earn $7,000. To stay afloat, I lived off my savings, and when they were gone, I tapped into the equity in my house. To say the least I was deeply discouraged. Ever so slowly I began to succeed as a commercial mortgage broker. But to get to that point required that I borrow against the equity in my house. It was a bit of an exaggeration, but I remember telling people I had the equivalent of the equity in my door knobs. Years have passed and today I own my home free and clear and I’m completely debt free.

Discouragement Takes Many Forms

In commercial real estate, discouragement takes many forms. It could be a day when every cold call you make, is not only a “no” but it’s a “hell no” or worse yet, the prospect hangs up on you. It could be a client, who through his words or actions, makes it readily apparent that he doesn’t appreciate what you bring to the table. And maybe the most discouraging, is losing a deal that you thought was a sure thing.

Grit and Success

So how do we keep moving forward in the face of discouraging setbacks? I recently read Grit: The Power of Passion and Perseverance by Angela Duckworth. This is a must-read book for anyone striving to succeed personally or professionally. For example, a high grit score for cadets entering West Point, is more important than any other factor in predicting whether a cadet will succeed in not dropping out during the first year at the military college. Grit is more important than intelligence, grade point average, athletic ability, leadership skills, etc.

The Hard Thing Rule

The book also reveals how grit can be learned by adopting the Hard Thing Rule. The author and her husband have incorporated this rule for their family members to live by. I liked the concept, so I’ve morphed it a bit so it can apply to commercial real estate professionals. There are three parts to the Hard Thing Rule. It is acknowledging that:

  1. To succeed in commercial real estate, we must do something hard, something that requires deliberate practice. For the newbie in the CRE business, it’s making a specific number of marketing calls each week, or attending a particular number of business luncheons, etc.
  2. You can quit the real estate business, but not until you’ve given yourself a chance to succeed. In my mind, it takes a bare minimum of three years before you can really know if the CRE profession is a good fit for you. Very few of us are overnight successes but those who persevere usually are rewarded for their efforts.
  3. To succeed in commercial real estate, our “hard thing” will change over time. It starts with cold calling and eventually we find a better way to market ourselves that is more productive. Whatever that new “hard thing” is, it’s not necessarily easier than cold calling, but it yields a far better return for the effort we put in. This could be focusing on the Pareto Principle, i.e., that 80 percent of your business comes from 20 percent of your clients. Maybe it’s becoming a thought leader in your particular niche in commercial real estate. By becoming the expert, slowly over time it attracts more clients who want to employ your services.

The Buddy System

One more thought about persevering when we are discouraged. I believe in the buddy system. Find someone you can confide in, someone you can tell your deepest, darkest fears to. This person should not be your spouse, nor someone you work with.

For me, I meet with my friend Rick on Thursday mornings at Starbucks. We’ve been getting together over coffee for about ten years. We talk about our families, our businesses, our ministries.  We do not talk about the weather or sports. When I’m discouraged Rick hears about it and vice versa. Just talking to Rick about my latest setback, whatever it may be, encourages me to pick myself up, dust myself off and get back into the arena of life. Life is not easy. But it’s far easier when you’re not doing it by yourself.

Those are my thoughts. What are yours? What do you do when you get discouraged?

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

Mastering the Art of Commercial Real Estate Investing

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The Unparalleled Brilliance of Our Founding Fathers

I often take for granted the unparalleled brilliance of the Declaration of Independence. What does it declare?  It declares four things. Find out what they are.

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This week we will be celebrating our country’s 243rd birthday.  I often take for granted the unparalleled brilliance of the concepts found in the country’s Declaration of Independence.  Historians cite Thomas Jefferson as the principal author of this document with edits by various members of the Continental Congress.

So what does The Declaration of Independence declare?  It declares four things:

1. It is a declaration of war

First and foremost it is a declaration of war against Great Britain.  It declares our right to independence because of the egregious behavior of King George III.  Wow!  That idea that the colonies could just declare their independence by itself is amazing.  But when you couple that with the risk of the signers of this document, it becomes much more amazing to think about.  The colonies were declaring war against the military superpower of its day.  What was their winning strategy?  They put their faith in a poorly financed, untrained volunteer army of mostly one-year conscriptions.  And if they lost the war, which was highly likely, the signers of the Declaration of Independence would be jailed, tried and hung with all their properties confiscated by the British crown.

2. It declares all men are created equal

This idea flies in the face of reality.  When Thomas Jefferson wrote those immortal words, he was a slave owner as were several other signers.  But even freemen were not treated equally as most colonies only allowed landowners the right to vote.  And what about women?  Women had very limited rights.  They could not own land and when they received an inheritance it became a part of their husband’s estate, not theirs.

And yet, those majestic words were not removed from this document even though there was an obvious disconnect from reality.  I often wonder why.  Don’t you?  I’m so glad that these words were left in because generations of Americans as well as people around the world have cited this truth as justification for many righteous causes throughout history.

3. It declares that the government derives its power from the consent of the people

Prior to this time that concept was unheard of.  In Europe, royalty believed their powers to govern were given to them by God, not man.  That meant that kings could do whatever they pleased and the people had to submit to their authority or face the consequences.   But the Declaration of Independence changed all this.  Man, not a higher power, chooses who their ruler is.  It also implies that if the people do not like how those in authority are treating them, they have the right and even the obligation to remove them from office.

4. It declares that we have rights

We have rights!  That among these rights are life, liberty and the pursuit of happiness.  Our rights are not limited to life, liberty and the pursuit of happiness.  They are just the beginning of our rights.  Down through the years this has been interpreted to mean there are rights not explicitly stated in the Declaration of Independence which has been cited by several political movements including the Women’s Suffrage Movement, rights for minorities (the Civil Rights Movement), and rights for workers (the Labor Union Movement).  These political rights organizations correctly understood that they derive their rights from the Declaration of Independence.

When you celebrate this July 4th remember these truths and marvel at their significance.

Doug Marshall, CCIM is the award winning author of Mastering the Art of Commercial Real Estate Investing.

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Steve Jobs – His 3 Life Principles to Greatness

Steve Jobs was an awful person to work. He could either profusely praise his employees or call them a piece of sh**, sometimes on the very same day.  Yet he will be remembered as one of the great men of his era. Find out three principles he lived by.

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A couple of years ago I read the excellent biography of Steve Jobs by Walter Isaacson.  Mr. Isaacson does not sugarcoat Mr. Jobs’s personality.  Steve Jobs would have been an awful person to work for as he could either profusely praise his employees or call them a piece of sh**, sometimes on the very same day.  To say the least, Jobs was a very difficult person to be around.

That said, 100 years from now I believe he will be remembered as one of the great men of our era, held in the same high esteem as Henry Ford, Alexander Graham Bell and Thomas Edison.

Three Life Principles

So what can we learn from Steve Jobs? What made him unique?  What made him highly successful? There were many traits that made him successful, far too many to list in a short blog post, but I would like to mention three:

1. He had an absolute passion for his work.

It was never about getting rich; it was all about making something he believed in.  He passionately believed in the Macintosh computer, the iPod, the iPhone, and the iPad to name just a few of the products Apple developed.  A recent survey indicated that 80% of Americans are not passionate about ANYTHING!  What are you passionate about?  Are you passionate about your work?  Do you find excuses to work late or come in over the weekend because what you do excites you?  Or do you even know what passion feels like?

2. He had an obsessive attention to detail.

There was a book written a few years back titled, “Don’t Sweat the Small Stuff… and It’s All Small Stuff.”  Jobs would have vomited his scorn on the author of that book.  Jobs was all about the small stuff.  “Good enough” was never good enough for Jobs. Jobs was all about hiring the most gifted people he could find and then working them to their extreme limit.  Conversely he would also not hesitate to ridicule and quickly fire those who did not meet his high standards. He pushed and prodded his talented minions to perform at higher levels than they thought possible resulting in many technological breakthroughs that Apple is now known for.  He was absolutely ruthless on his employees but afterward they grudgingly loved and worshiped him for it. How often do you settle for results that are less than your very, absolute best?

3. He was a “value creator.”

He didn’t invent many things outright, but he was a master at putting together ideas, art and technology in ways that superseded what had come before.  Jobs once said, “Picasso had a saying, “Good artists copy, great artists steal” and we have always been shameless about stealing great ideas.” Regardless of what we do for a living, our job boils down to adding value in the form of a product or service, for either our boss, if we have one, or our clients who are our ultimate bosses.  When we stop adding value, watch out, we’re expendable!  What can you do today to add additional value to your work so that your boss or client without hesitation realizes your importance in making them more successful?

I have heard people say, “Well I’m not Steve Jobs.”  Or they might insert another celebrity entrepreneur in that statement, like Richard Branson or Elon Musk. Deep down what they are saying is that they don’t have the courage to try to be exceptional.  And I ask, “Why not?”  Being average is certainly not the road to happiness or success.  But living these life principles may get you further down the road to success than you are right now.

Stanford Commencement Address

In June of 2005, Steve Jobs gave the commencement address to the Stanford graduating class.  If you haven’t listened to his speech it’s worth doing so.  It has been viewed on YouTube over 22 million times!  His words that resonate the most with me are, “Your time is limited, so don’t waste it living someone else’s life… Don’t let the noise of others’ opinions drown out your own inner voice.  And most important, have the courage to follow your heart and intuition.  They somehow already know what you truly want to become.  Everything else is secondary. ”

Yes, it is highly unlikely that we will ever be remotely as successful as Steve Jobs but should that stop us from living by the principles that led to his great success?  I think not.  Those are my thoughts I welcome yours.

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The post Steve Jobs – His 3 Life Principles to Greatness appeared first on MarshallCf.

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