FAQ


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 GRM?

GRM stands for Gross Rent Multiplier. This is a method used to value apartments by dividing the price of the property by the gross potential income (rent). If the potential current gross income is $100,000 and the asking price is $1,000,000, then the gross rent multiplier =10. 

$1,000,000 / $100,000 = 10 GRM

The GRM can be quickly used to survey the market by filerting out properties with a low price relative to the market based gross potential income. In addition, the GRM is best used when compared to other GRMs for similar properties located in the same geographic and demographic area.

Caution - using the GRM has limitations. It is essentially like using revenue for a coporation as a measure of value. The challenge with this approach is that when you purchase an investment property, your return is not based upon top-line revenue (gross potential income), but rather it is based on cash flow.

Q: What is a CAP rate?

A Capitalization Rate (CAP rate) is a rate of return on the expected income that the property will generate. The CAP rate is used to estimate the investor's potential return on his or her investment. This is done by dividing the income of the property will generate (after expenses such as taxes, utilities, debt service, etc.) by the total value of the property - i.e., 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.

$150,000 / $2,000,000 = 7.5% CAP

Q: What can I learn from a pro forma?

A pro forma tells you the Gross Rent Multiplier (GRM) 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 brokerage firms?

In the markets we serve, we are the leading commercial real estate company specializing in multifamily investment sales and advisory services. As a result, we know how to market your property -- locally, nationally, and globally -- better than anyone. We also know when to advise you to hold and improve operations so that the asset can be best positioned for a sale when the time is right.

Our company is a special place. Our working environment is close-knit and dedicated. We are team oriented, persistent, and we settle for nothing less than your success. Our brokerage team has been deployed in markets throughout the Pacific Northwest. Their collective experience and proven track record encompasses expertise in advising individual investors with a $2 million property to instutions with $50 million portfolios. The benefit of our brokerage team's depth and local knowledge is that results get delivered.

We also employ:

  • Two veteran transaction/escrow managers who ensure your transaction runs smoothly.
  • Two experienced property analysts/underwriters who provide spot-on valuations and investment summaries, thus profiling your property in the best light.
  • An award winning marketing director and seasoned graphic designer. Their innovative and fresh marketing tactics find ways to gravitate more invetors to our firm to close on transactions.
  • A managing director who does not compete with the brokers for new business. His objective is to continually seek better ways to improve the client experience, while holding all accountable to the highest of standards. 

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 an exclusive listing agreement is signed, we meet as a firm to collaborate on the best approach so that sale of your property achieves the highest price and best terms with the most qualified buyer in the shortest period of time. The marketing team gernerates an offering memorandum ready to be taken to market, but not before you approve the package.

Upon approval, the listing brokers presents the investment opportunity at our weekly sales meeting so that all brokers are educated and informed prior to contacting their buyer pool. Immediately after the sales meeting, the research team creates customized call lists for each broker. The brokers then begin making personal telephone calls to individuals, firms or institutions in our proprietary database of more than 4,000 investors whose purchasing criteria match your listing to promote the asset.

Additionaly, we expose your property to hundreds of likely buyers through our electronic newsletter. We also have the ability to profile your property on our web site -- up to 3,000 unique visitors 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.

We ensure you are able to hold us accountable to our marketing efforts by providing weekly updates and feedback forms. We work for you and we have the ability to throttle or accelerate different phases of the marketing plan based off of your comfort level and timeline.

Achieving the highest price and best terms with the most qualified buyer is not done with one offer. When you hire HFO, we leverage our firm-wide specialization, collaboration, and passion to generate multiple offers. Once the offers have been presented and a buyer is selected, you will have the benefit of working directly with one of our experienced transaction managers through the due diligence process. In conjunction, your broker and transaction manager work purposefully by your side through the post-close process. 

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

Oregon
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.

Washington
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?

Thanks to IRC Code Section 1031, a property structured, 1031 exchange allows an investor to sell a property, to reinvest the proceeds into a new property and to defer all capital gain taxes. 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 Incorprated. www.1031exchange.com 

All investors should also consult with their accountant or financial advisor when considering a 1031 exchange. 

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 $750,000 for a property worth $1,000,000
would mean an LTV of 75%.

$750,000 / $1,000,000 = 75% LTV

The buyer would provide 25% or $250,000 as a down
payment.

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
2014 Portland Metro U.S. Apartment Vacancies End At Nation's 5th Lowest
February 23, 2015
by HFO Research

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

The Meridian - $8,500,000
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Absolutely professional in every way. I believe they know the market and the strengths and weaknesses and do a superb job for the seller and I think for the buyer as well.

Sue Anthony, Vancouver, WA