Q: What advice do you give to an owner when they are considering putting a property on the market?

Find a firm that knows how to listen. By listening to what your goals and objectives are, a good broker can help put a plan together that will help achieve your goals. Be careful of those who might just tell you what you want to hear! The person you work with should listen to you, and be willing to tell you when, given all the circumstances involved, it's not in your best interest to sell your property.

Then, when you're sure the time is right, choose a brokerage team with the experience, knowledge and skill to implement an effective plan of action. 

Q: What advice do you give a prospective investor when they are considering buying a property?

You need to have someone working for you with the expertise to analyze the properties in terms of valuation and operations. In any transaction, it's "surprises" that come up that prevent a sale. You will be best served by working with an expert who can identify potential surprises and find solutions in advance.

You'll also want to work with someone who is not afraid to tell you whether what you're hoping to find is in line or out of line with the market. Portland metro multifamily properties typically are not trading at cap rates above 7.5% and above. A buyer coming into this market sometimes needs to be educated on whether their expectations in terms of return and pricing are realistic.

Look for a firm that doesn't push you into a deal because it benefits them. Find someone who does what's right for you. A client can get the most out of a broker/client relationship when they are acting in sync over the long term.Brokers are always on the front lines of what properties are coming to market.The more they know about you and your investment goals, the more great opportunities will come knocking at your door.

Q: What is a GIM?

GIM stands for Gross Income Multiplier, which is also known as Gross Rent Multiplier (GRM). This is a method used to value apartments by dividing the price of the property by the current rental income. If the total current rental income is $100,000 and the asking price is $1,000,000, then the gross income multiplier =10. [$1,000,000 divided by $100,000 = 10.]

Q: What is a CAP rate?

A Capitalization Rate (CAP rate) is the percentage rate of return based on a piece of property's income. This is the income divided by price. A property that cost $2,000,000 with an income of $150,000 would have a CAP of 7.50.

Q: What can I learn from a pro forma?

A pro forma tells you the Gross Income Multiplier (GIM) and the CAP (capitalization) rate for the property. You also learn what current rent rates are overall along with income and expenses and other building details. Building and property characteristics include: unit mix, price per unit, overall square footage, amount of acreage, assessed values and unit amenities.



Q: What's the difference between HFO and other brokers?

In the markets we serve, we are the leading commercial real estate company specializing in multifamily properties. As a result, we know how to market your property -- locally, nationally, and globally -- better than anyone. Our company is a special place. Our working environment is close-knit and hard-working. We are passionately team oriented, persistent, and driven to succeed. We employ a full-time professional transaction manager who ensures things run smoothly.  We also have a full-time VP of Research and Marketing to work exclusively on leveraging every aspect of marketing your property to the widest possible audience nationwide.

We routinely receive compliments for having professional, responsive and talented people who build enduring relationships with our customers. We have a reputation for expeditiously and reliably doing exactly what we say we will do. Let us prove it to you.

Q: What do I get when I hire you?

HFO employs a detailed marketing strategy. Once a property is listed, we immediately begin making personal telephone calls to individuals in our proprietary database of more than 2,000 investors whose purchasing criteria match your listing. We also push your listing by e-mail to hundreds of buyers through our electronic newsletter. Your listing also reaches visitors to our web site -- up to 3,000 investors each month. Finally, we utilize cutting-edge technological resources to reach more than 1.1 million investors and brokers throughout the nation and around the world.

Q: Are there any transfer taxes involved in property sales?

There is no city, county, or state property transfer tax in the state of Oregon with the exception of Washington County. Washington County assesses a tax of $1 per thousand. The standard practice is to split this tax 50/50 between the buyer and seller.

In Washington State, there are excise taxes on transfers -- considered a sales tax. The amount varies from county to county. These rates change occasionally. These taxes are usually paid by the seller

Q: What is a 1031 Exchange?

A 1031 Exchange is an investment tool that should be used when someone wants to buy and sell more property. Instead of selling, paying taxes, and then acquiring other properties, you can avoid the tax payments by exchanging properties. The basic rules are:

  • Something must be given away, and something received
  • The exchanged property must be a like kind. Any property used in a trade, business or for investment may be exchanged for another property used in a trade, business or for investment.
  • To ensure a fully tax deferred exchange, property value, equity and mortgage must move straight across or up in value from one property to the next
  • There must be continuity of vesting throughout the exchange - the same entity that gives up the relinquished property must receive the replacement property.
  • The replacement property must be identified within 45 days of the relinquished property closing date and received within 180 days of that same closing date.

Source: Equity Advantage Incorporated. www.1031exchange.com

Q: What is measure 50 and how does it affect property sales?

Measure 50 is a constitutional measure approved by Oregon voters on May 20, 1997. The measure, in addition to replacing Measure 47, repealed nearly every other provision in the Constitution dealing with property taxes. It did retain, with some significant changes, the provisions of Measure 5 passed by Oregon Voters in 1990.

Measure 50 converted Oregon's property tax system from a levy based system to a combination rate and levy based system. Taxing districts no longer have a "tax base" for operating purposes that grows automatically by six percent a year. Instead, each district has a frozen, permanent tax rate for operating purposes, but may also obtain revenue from the passage of bonded debt and "local option" levies. Revenues from the permanent rate may increase or decrease along with the assessed values in a district. Revenues from local option levies are subject to the limitations imposed by Measure 5. Revenues from bonded debt levies (such as new school construction) are not subject to limitation but must be approved by the voters in the district.

Measure 50 limits assessed value. For each property tax account, the value was "cut" in 1997-98 to the assessed value that the account had in 1995-96 less ten percent. It then "capped" the value in 1998-99 and subsequent years to 1.03 percent of the prior year's assessed value. The assessed value can exceed these limits in certain situations, such as when major construction occurs or when a property is disqualified from special assessment or exemption programs. The value of these "exceptions" are assessed at the same ratio of assessed value to market value as existing property thus giving new property the same relative tax break. This ratio is referred to as the "changed property ratio". In addition to establishing the new maximum assessed values, real market values and/or specially assessed values were retained.

How Your Property Value Is Determined: Measure 50 creates a new value for each property, the "maximum assessed value". Thus, each property has a Real Market Value (RMV) and a Maximum Assessed Value (MAV), the lowest of which is the Assessed Value (AV). For properties that are specially assessed in farm or forest deferral programs or are partially exempt (enterprise zone, etc.), there is a third set of values reflecting the special assessment or exemption but the AV is still the lowest of the three values.

Properties fall into one of these four categories:

1. No Change Properties. These are accounts that have had no assessment activity since 1995-96 other than RMV trending or ownership changes. There has been no new construction, no land size changes, no changes of any kind that trigger an exception to Measure 50. In these cases, the assessed value will usually be the 1995-96 RMV less 10%, increased by 3% per year after 1997. See Example 1.

2. Changed Properties (Exceptions). These are accounts that have had some assessment activity since 1995-96 that allows for an adjustment in the MAV. Examples of Exceptions are new construction or disqualification from special assessment. The MAV can be increased above the "cut and cap" limits. The AV in these cases will be the current MAV of the account plus the MAV of the Exception. The MAV Exception amount is determined by multiplying the current RMV of the Exception by the "changed property ratio" (CPR) described above. See Example 2.

3. RMV Change Only Properties. These are accounts that have had some assessment activity since 1995-96, however, the activity does not allow for an adjustment to MAV. The RMV changes but the MAV does not. These changes would include reappraisal, reductions due to an appeal, reduction due to removal of a structure and "minor" construction with an RMV of $10,000 or less. The change could result in the RMV being increased or decreased. In cases where the RMV is reduced to less than MAV, the RMV becomes the AV because Measure 50 requires the AV be the lower of RMV or MAV.

4. MAV Balance Change Properties. These are accounts that have had some assessment activity since 1995-96 that allows for an adjustment in the MAV, however, the total MAV of the accounts must be the same before and after the account changes are processed. Examples of this would be a lot line adjustment where no new tax lot is being created, or a manufactured structure that has been assessed as personal property is "converted" to a real property assessment basis. See Example 4.

How Your Tax Bill Is Calculated: For most properties, the tax calculation is fairly simple. The AV is multiplied times the tax rates for each of the districts that levy a tax in your area. These tax rates are calculated after each district's levy is reduced according to Measure 50, however, Measure 50 retained the tax rate limits imposed under Measure 5. Passed in 1990, the Measure 5 rate limits complicate tax calculations because Measure 50 taxes are calculated using AV and the Measure 5 limits are calculated using RMV. When reading this, remember that most bonded debt levies are exempt from Measure 5 and Measure 50 so are not involved in the calculations described in the next paragraph.

Measure 5 tax rate limits: The limits are $5 per $1000 of RMV for Education districts and $10 per $1,000 of RMV for General Government districts. For each of the Measure 5 categories (Education and General Government) two calculations are required: the Measure 50 category tax rate times the AV and the Measure 5 category tax rate times the RMV. Whichever amount is lower is the amount to use. After making the determination by category, the adjusted tax rate is multiplied times the AV.

After the Measure 5 limits have been calculated, the Education taxes, the General Government taxes, the bonded debt taxes (if any) and any special assessments are all added together to determine the total property tax amount.

Source: Columbia County Assessor's Office web site: http://www.co.columbia.or.us/assessor/ballotmeasure50.php

Q: What does LTV stand for?

LTV (loan-to-value) is simply the amount of the loan as
a percentage of the total purchase price. For example,
a loan of $600,000 for a property worth $1,000,000
would mean an LTV of 60% ($600,000 / $1,000,000).
The buyer would provide 40% or $400,000 as a down

Q: What does DCR stand for?

DCR (debt-coverage-ratio) is the ratio of a property's
net operating income (income after expenses but
before debt service) to the annual debt payments due
on the loan. For example, a property with an NOI of
$100,000 and annual debt payments totaling $80,000
would produce a DCR of 1.25 ($100,000/$80,000). This
is the ratio that Lenders use to determine whether a
property can produce enough income to support the
underlying loan placed on the property.

Featured Article
The Central Eastside's Skyscraper
March 26, 2015
by Lee Fehrenbacher, HFO Broker

HFO Investment Real Estate LLC
2424 SE 11th Ave
Portland, Oregon 97214
Phone: 503.241.5541
Fax: 503.241.5548

The Bayshore - $4,950,000
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We will continue to use HFO for transactions even though we get calls from others often.

Wally & Patricia Scherler, Portland, OR