Being an asset manager is being
in control of the assets for

your real estate syndication or
real estate investment fund. The

job itself is like property
management. But you can think of

it as the higher level decisions
that go on to in making sure

that the asset performs the way
it's supposed to. We talked in

the last video about property
analysis, this video talks about

the financial analysis that
takes place. Again, the purpose

here is to set a baseline for
the existing for the existing

performance, so we can measure
against it identify issues

before they become problems.
This is also where you may start

to see oh, this is timing to
exit the VAT exit the property,

either in here, or it's going to
be in the market analysis, which

is our third video. I hope you
find these videos helpful.

We're talking about operations,
we're talking about custody. And

in this video, we're talking
about financial benchmarking.

Now, why are we talking about
this here? Well, we're talking

about it, because what we're
trying to do is under the

custody portion, we're setting a
benchmark. And this is something

you'll regularly do either every
month or every quarter, in order

to keep track of where you're at
with your property. So what

we're trying to do is we're
trying to set a benchmark, in

order to make sure that we're on
basically the right track, it

lets us know where we've come
from, and where we're going. And

it gives us a good idea of that.
So there's a few ideas that we

need to go through. First off,
this is not your underwriting

portion of the core, the
underwriting portion actually

comes under rally and undefined
is where you'll be mostly doing

your underwriting, as well as in
the finance section. Also in

rally, that's where we'll be
talking about more underwriting.

But I'm gonna go through this in
some level of detail. And it's

gonna be a repetition to some
extent, because what I want to

make sure we're doing is we're
getting this in this is the

basis of all real estate, this
is one of the most important

issues. By far and understanding
how the money works, you

understand how the money works,
you can start understanding how

a syndication works, and then
ultimately, you can talk to an

investor. So we need a few
things. In order to get started

with this, we need a rent roll.
This you may have already done

in your lease analysis. Also
under this section, if it's not

done yet, you will need to
generate a rent roll. Because

basically, what you're trying to
find out is who all your tenants

are, what the rent is, what the
operating expenses they pay is,

in order to be able to put this
into your financial benchmark.

It also is very, very helpful to
have three or more years of

operating history. Now, you may
or may not have this, but it

certainly helps in order to be
able to figure out what what

some costs would be, or what
income looks like, or what our

vacancy rates look like things
like that, in order to

accurately predict it. So then
we've got our Loan Summary.

Because what we're trying to
find out here is just the cost

of the money that we're using
the cost of the debt that we're

applying to this indication. So
let's get started. Now what

we're going to do is we're going
to be taking a snapshot. And

what we'll be doing is this is a
snapshot that can take place

over a month to month basis. And
I encourage you to do it that

way in order to make sure that
you're on top of your finances

at any point. And this feeds
directly into the information

that's super valuable for when
you're giving your investors

their updates, which will either
be a monthly or quarterly and

we'll talk about that in our
update in the communication

section under updates. But it's
will be very important

information to make it very
simple for you. So let's start

with income. Actually, let's
start with these two ideas. And

we talked about this in our
underwriting as well. We have

our above the line costs, and we
have our below the line costs.

That line is drawn at noi. So
everything above the line is

goes into calculate noi,
everything below the line is

just used to take that NOI and
figure out what our cash flow

is. So let's say, let's start
with all of our above the line

costs. So first, we start with
income. Now, since you've

already got your rent roll, what
we're trying to project is for

that past month, what is our or
what was our rental income? What

was that rental income, so you
know how much money you took in.

And then I would do it based on
the total income, that is

potential, you don't have to do
it this way. This is an advanced

technique that's really, really
useful.

And what we're saying is, of the
leases that are in place, what's

the total amount that we could
then that we could have turned

in. So if somebody hasn't paid
their rent, we're still counting

that. But we're not taking into
account. But we're putting, so

we're putting that as $1 amount,
and then we're going to subtract

it out later. Same thing with if
you have a vacancy, we would

actually put the market value of
that in and then subtract out

that the that vacancy cost. And
here's where we do that is here,

this next line, we're going to
subtract out vacancy and credit.

And we do that because then it's
very simple for us to see a

historical basis for what our
costs are for vacancy. And what

is also been our costs for
nonpayment. And then when you

take those you take rental
income minus the vacancy, you

get the effective rental income.
But that's not the end of the

story is it because not all of
your all of your buildings

sometimes have additional
sources of income. If you think

about an apartment building, for
example, you may have laundry in

the apartment building, and they
play, they pay for laundry, so

that becomes other income. And
so we add other income

to that to the effect of rental
income, and we get our gross

operating income. So that's how
we get our gross operating

income. Now, that's not the only
thing that goes into the

financial benchmark is there,
there is also your expenses.

Now, I like to do my expenses in
a very specific order, you may

change the order as you will, I
like it in a specific order,

because it's what most
commercial real estate brokers

are used to seeing it in this
order. Because it's also the

same order that's used by
organizations like CCI M. So I

follow the same order. And I
think it makes sense. I always

know where to look when it's
there. And it makes it very

efficient. So I want to know
what my taxes expense is. So

this could be your property tax,
this could be your this could be

your personal property tax. It
sometimes there is that personal

property tax, and I would just
add them together or you can

break them out on different
lines. Now you may be in a place

and probably are where property
taxes are not paid monthly.

They're paid maybe two times a
year. And if that's the case,

you have to do you have a choice
to make either to build an

account in order to allocate for
that, say you amortize it over

that that period of time, or you
can and kind of segregate your

account money that way or you
can just do it on a month basis.

But then you're going to have
some months where you get

clobbered and then you have some
months where you're going to be

doing great. So I would rather
you amortize it out. And maybe

just make a note that it's an
amount that's amortized over

over that 12 years or 12 months.
Then we have our insurance. And

here we really mean our property
insurance. And then management

fees. Now, management fees,
typically can be broken down

into more portions, if you more
different categories, depending

on how extensive your management
is, if you're doing payroll,

things like that, we do put line
items, we'll go through those in

a minute. But maybe it's just a
straight management cost. If you

have a third party manager, then
you probably just have a

straight management cost rather
than breaking it down like this,

but there are some other
categories like payroll and then

man expenses of the management
company, so that may be your

postage or things like that.
Taxes and workman's comp

so these all kind of go under
management. And if I'm doing

this in a spreadsheet, I'm
probably kind of compressing it

and making it look neat so that
they all kind of go together and

it makes it a little bit more
clear. Then I want to know I do

repairs and maintenance. Now I
like to break these down into

three different categories to
make it simple for me to

understand. So I like to do non
capital repairs

and then capital repairs and the
difference between these really

is more as more to do with how
you're going to depreciate it

for our purposes than anything
else. But I like to break it

down this way because typically
a non capital repair is

something that comes very you
know that I'm not going to

amortize over the course of a
year where a capital repair is

something I might very well so,
after capital repairs, I do my

maintenance and this is really
everything else

and then I because it's so
closely related to maintenance I

like to put my janitorial
Portage there then we start

talking about utilities I should
back up a little bit so there

are a lot of buildings where the
tenants are paying part of their

utilities but the bill is coming
to the to the landlord and so I

count cam reimbursements here

cams so I put my cams in my
other income you could I suppose

put it as part of your your
rental income and then also you

also have a calculation for your
vacancy and credit but it may

not balance out if you did it
that way. So under Utilities,

we've got our electricity water
gas, trash. I like to put all

those I like to put trash
underneath utilities you may

have sewage may be separate well
however it works best for your

property. Then we've got
accounting

and legal and now here's
something I like to point out.

These are things that are affect
the property. This is not items

that are for your syndication.
So I would not include things in

accounting and legal things like
lawyer fees to get your your PPM

done. I would not look put in
there things for you are taxes

for your que ones specifically?
It is not what I would include

in there, what I would include
in there is any kind of

accounting and legal that
pertains to that property

itself. So you have a slip and
fall on the property, you get

brought into a lawsuit, I would
put that in there, you have an

investor suing you because
they're not happy, I would not

include this in their licenses
and permits.

This can be everything from your
business license if required, or

your elevator license, things
like that. Advertising. A lot of

places will advertise to make
themselves kind of known in the

community and increase
themselves. It's not super

necessary, but I would certainly
include things like your

vacancies, I would include my
advertisements for vacancies

that I am paying a in there as
well. Now if you're if you have

a real estate agent who is doing
the leasing for you would not

include that unless it was was
something that was completely

separate from their brokerage
fees. And then their supplies,

this is everything from toilet
paper to cleaning fluid to

things like that things every
building needs. And then we put

other contract labor

and here we're talking about
pest control your H fax service

contracts, your roofing service
contracts, snow removal items

like that. Now, at the end, we
add all of those up we get our

total operating expense expenses
so now what we've done is now

we've got our we can go all the
way back up here and we can say

our our gross operating income

minus our total operating
expenses equals your net

operating income

so now we've got our bills are
everything done in that above

the line area, right, this is
everything above the line. So

let's begin even

Okay, so now that's our above
the lines. Now let's do our

below the line. So let's start
first, both by putting in a y

over here. And now let's
subtract out a few things. So

now let's subtract out our debt
service. interest. And here I

really like separating this out
and separate out my debt service

principle I separate this out
because it makes my calculations

about different ways of doing
our my ROI better and easier to

see. And it also sets me up for
seeing what my after tax

situation is. Now I don't think
that the that the financial

benchmark is the proper place
for calculating your after tax.

So I don't I don't include that
in my benchmarking when I do it.

So I subtract out the debt
service interest debt service

principle if I have multiple
loans, obviously I have more

items than just two. And then I
calculate anything I subtract

out anything I put away towards
my funded reserves because that

moves off your income statement
over to the assets statement.

And then ultimately, and then I
subtract out any leasing

commissions I paid

And then, and that includes if
you are a syndicator, and you

did your own leasing, but you're
getting paid a leasing

commission that includes money
that was paid to you as the

syndicator. And that equals our
cash flow. before taxes.

So, how often do I do this?
Well, at the end, I do this, I

tend to do this on a monthly
basis, sometimes I'll do it on a

quarterly basis, but then I will
backtrack to make it a monthly

thing. And so typically, when I
Syndicate, I generally don't do

my own property management, I
tend to hire a property manager,

because I have other things that
I would rather be doing. But I

mean, not that there's anything
wrong with property management,

but I it's my use, my skills are
much better at left not doing

the property management and
having somebody do it. And then

I get them to basically fill all
this out on the income on the

expenses, I just finish up the
the other expenses as well make

sure it's lined up. And then at
the end of the day habit. So I

like to do it on either an on a
quarterly basis, or monthly. So

I basically am building out this
as we go along this running

spreadsheet that just goes down
the line. And then what I can do

with that is I can really
quickly get different

performance measures out of it
and see how I've been doing. Now

at the very outset of this, you
probably will be doing a one

year snapshot. Now that one year
snapshot will be dated at the

time of purchase and the year
previous to it. So it's sort of

like leading up to it plus that,
but I would add any changes in

taxes on the front end. So I
would kind of do it's kind of a

pro forma. But I'm not doing a
pro forma based on changes in

rents or any sort of add value I
want. Basically what I'm trying

to see is what it would look
like for the for a year where I

owned the property, but I did
absolutely nothing and I didn't

as it so I can kind of set a
benchmark on that. They

certainly can do at the time of
purchase. That's okay, too. But

I would caution you, when you're
looking at your measures on

things, especially like taxes,
there's going to be a

substantial change in taxes in
most jurisdictions within that

one within that year, or within
two years, when they have set

the reassessment time. So that
said, that's when I do that. And

this is a below the line. So the
cash flow before taxes

ultimately is what your investor
cares about. In your particular

investment. You're above the
line cost is what what a buyer

cares about. Not that your
investor doesn't care about it.

But your true performance for
the investor is that cash flow

before taxes. That was financial
benchmarking as the monthly or

quarterly time periods. So I
hope you found that video that

blast from the past video
helpful. Now why did I say blast

from the past? Again, this was
made for my High Level

Mastermind, top real estate
professionals that I helped

coach to help them become
investment managers, real estate

syndicators themselves and go
from working very at a high

level either as high level
brokers, high level property

managers, even members of REITs
so that they could then take on

the mantle themselves and
establish their own investment

company. So my name is Tilden
Moschetti. I am a syndication

attorney for the Moschetti
syndication Law Group. If we can

help you be successful by doing
the legal work necessary to help

you become a do your first
syndication, put together an

investment fund, we'd be happy
to help. Not only do we help you

with the compliance piece, we
also obviously have a background

and expertise in the business
side as well. And we can help

use our expertise to help you
and make sure that you're

successful.