Gerald Guterman

Ms. Russell and Ms. Umberger: Thank you both for the interview and a well thought out article. Articles of this quality encourage other participation and this is one of the rare times I am participating. For an investor thinking about rental real estate, I would like to offer some thoughts that have taken me 43 years to learn and enough pain to remember. I believe this latest cycle of real estate failure, is due in part to real estate investors’ ignoring the firm and unshakable "Rules" that form the foundation of our business. The value of an income producing (rental) property is based on the property's ability to produce rental revenue and a cash on cash return. A rental real estate investor makes his money on the day real estate is purchased, never on the day real estate is sold. How strange this latest investment cycle has been. Investors have been willing to pay for value based on a questionable, low, or no cash return, in a market that "never goes down". How strange that many acquisitions are based on future appreciation without real, hard, present value considerations. Certainly purchasing for present value is old fashioned and lacks the sophistication normally available….from a Gypsy fortune teller. We are in the Investment Real Estate Business and we have rules to live by for survival and profit. Sleeping or awake, money costs money, every minute of every hour of every day. We are also investors in a business that can make money every minute of every hour of every day. Rental real estate can be a money machine that rewards the knowledgeable participant with real, touchable, current cash flow and real touchable, future appreciation. The most important rule to learn is, money isn’t free. Only the inexperienced, believe tomorrow’s value (perception) is today’s reality and today’s reality is irrelevant. I suggest that a rental investor look at a property's history of comparable rents and comparable sales. Look at current and historical revenue and expenses of the property. Look for patterns and look for needed replacements and up-grades. Confirm adequacy of replacement reserves to ensure that funds are available and of course, confirm current cash flow and cash flow history. Lastly, but important, determine the probability of short and intermediate term cash flow. Remember, it’s always the purchase price that determines the cash on cash return. Additional profit may (or may not) be realized when the property is sold. Thank you, Gerry Guterman GERALD GUTERMAN GUTERMAN PARTNERS, LLC D. 561 383 6504 C. 917 678 0339 E. gg@gutermanpartners.com w. www.gutermanpartners.com