During the past decade a whole new generation of companies have emerged. These companies have created a new industry. They are the money managers, and the money management industry. They manage other people’s money in everything from the stocks, bonds, real estate, etc., and your own day to day financial needs. Money managers come in all forms. There are specialized advisory firms for institutions, professional money managers for individuals, mutual fund families for everyone, managed accounts at securities firms, etc.

How good are they? That depends on how they treat your money. There are three types. Money managers who:

1. Treat your money like it was theirs.
2. Use your money to create fees.
3. Just don’t care, because they make a fee for doing nothing.

When it comes to who is advising your real estate money, how do you know which type you have? It’s not hard to determine which type you have. To find out, you need the answers to two questions. Those answers tell you who your manager is working for, you or them. The questions and qualifiers are:

1. Is the real estate currently earning a reasonable return on investment (ROI)? ROI must:

• Be based on lessees paying market rate rent for leased space.
• Identify and account for all leasing costs and obligations that affect income.
• Be based on identifying and accounting for all operating expenses.
• Have fixed market rate debt service.
• Be supported by financial statements that follow Generally Accepted Accounting Procedures (GAAP).

2. Will the real estate earn more money in the future? Future earnings must be:

• The result of distilling qualified facts as the basis for projections.
• The study is not static (without adjustments for input) in nature.
• The study is done by a third party with no financial motivation for a certain conclusion.

Complying with both questions is not easy. It takes time and resources. But that’s what a good real estate manager does.

In times past, earnings (cash flow) were not an important issue for the real estate investor. You could buy real estate that was earning or loosing money. Real estate cycles were of shorter duration. Therefore, if you could only hang on, it was just a matter of time before a bull market would come along and correct all the mistakes made in the buying and management process. That’s many of today’s real estate money managers were buying properties with a 5% capitalization rate. Unfortunately, these conditions no longer exist. Holding onto a pretty property is no assurance of it becoming a successful investment.

Determining whether the real estate is earning a reasonable yield is a very difficult assignment. Yield is predicated on finding the best Net Operating Income (NOI) that represents a particular property. Since there is no standard that exists for deciding which income or expense numbers to use, this is not an easy task. Analyzing past earnings, lease rollovers, and occupancy costs are critical for finding the most representative NOI. Once you have this number, you divide it by the purchase price for determining yield. Under no conditions should that yield be less than the cost of debt service (negative spread).

Finally, earnings and yield need to happen today, and not in the future. Tomorrow’s successful investments will come from the acquisition of today’s successful real estate. When you find a real estate money manager who subscribes to the two questions described above, then you will have found a real estate manager who is treating your money like it was theirs.

The headline on the front page of the December 22, 2008 edition of the Wall Street Journal read: “Developers Ask U.S. For Bailout As Massive Debt Looms.” Obviously, these developers didn’t follow NetGain’s recommendations.

John Neville Keynes (1852-1949), the English economist and father of the famous economist John Maynard Keynes, said: “A positive science may be defined as a body of systematized knowledge concerning what is.” That quote may be the most perfect definition of due diligence. When applied to income property, it answers the following questions essential to every investor’s return on investment: Should I buy that property? What price should I pay? Should I sell that property? What price should I sell it for? Should I refinance that property? Should I invest in capital improvements for that property? The rationale to finding the answers to those questions is predicated on good, qualitative, professional due diligence.

Because income property is an illiquid (no secondary market) asset, it is especially vulnerable during a recession. Consequently, when making a financial decision affecting income property, good, qualitative due diligence is not an option. It would be an irresponsible act not to execute good, qualitative due diligence.

NetGain has developed a comprehensive and unmatched due diligence system for income property investors. It is called the Economic Valuation System (EVS™) and was originally published by the Dow Jones Press. EVS™ is a pro-active system that allows the investor to grade and score the property on a Web-based form. A printed buy, hold or sell recommendation is the final result. EVS™ includes over 100 critical issues that affect the value of income property. These 100+ issues are divided into seven main categories: Area, location, structural integrity, support amenities, capitalization rate, debt, and leverage. Use of EVS™ requires registering (at no charge) with NetGainRealEstate.com. In addition to free access to EVS™, you will receive timely updates on market and economic changes that affect the value of income property.

Once you have completed the EVS™ program for a property, you still have to place a value on that property. Next you go to NetGain’s National Income Property Index (NIPI™). This index weighs and interprets the impact of consumer confidence, unemployment, and mortgage cost on the economy. It then translates that information into a recommended capitalization rate.

NetGain believes that the capitalization rate is the purest and most dependable financial indicator for determining income property value. EVS™ is the gateway for obtaining the most reliable capitalization rate. By using NetGain’s EVS™ and NIPI™ together, the 2009 income property investor will increase their probability for maximizing gains while minimizing risks.

In the past when our economy needed a jump-start, the method of choice was interest rates. The Federal Reserve Bank (Fed) would step in and ratchet down interest rates. After several downward rate adjustments, we would reach a rate that would give the business community sufficient confidence to believe that the return on investment (ROI) would be higher than the cost of debt from borrowing capital.

This conviction resulted in businesses borrowing money, expanding their operations, and increasing employment, as well as higher consumer confidence and more consumer spending. The effect of these events was that the economy bottomed out and went on to better times. Read More

It’s official: On December 1st, 2008 (one year late), The National Bureau of Economic Research, a panel of academic economists charged with the official designation of business cycles, said that the United States economy has been in recession since December 2007, when economic activity peaked.

Meanwhile, executives who’ve mismanaged their corporations can look forward to the federal government providing tax dollars to bail them out. Additionally, those individuals with questionable credit who overextended themselves with mortgage debt can look forward to the federal government providing tax dollars to bail them out. Not to worry - the politicians who are overseeing all this tax money being used for bailouts are the same politicians that are responsible for the biggest monetary losses in the history of the planet.

Currently, the government appears to have a three-pronged approach to kick-start the economy: (1) Provide cheap mortgages to avoid foreclosures. (2) Keep poorly run companies afloat to avoid increased unemployment. (3) Provide government supported jobs to fix America’s infrastructure. All warm, fuzzy, feel good programs. Meanwhile, there is no mention of creating civilian jobs supported by well run companies that make products which are in demand. In contrast, NetGain’s own proposed solution for the U.S. economy is centered on all industries that will contribute to energy independence.