on 15-Feb-2018 (Thu)

One definition is that a random vector is said to be k-variate normally distributed if every linear combination of its k components has a univariate normal distribution.

The multivariate normal distribution is often used to describe, at least approximately, any set of (possibly) correlated real-valued random variables each of which clusters around a mean value

The mutual information of a distribution is a special case of the Kullback–Leibler divergence in which is the full multivariate distribution and is the product of the 1-dimensional marginal distributions

In the bivariate case the expression for the mutual information is:

Conditional distributions

If N-dimensional x is partitioned as follows

and accordingly μ and Σ are partitioned as follows

then the distribution of x₁ conditional on x₂ = a is multivariate normal (x₁ | x₂ = a) ~ N( μ , Σ ) where

and covariance matrix

This matrix is the Schur complement of Σ₂₂ in Σ. This means that to calculate the conditional covariance matrix, one inverts the overall covariance matrix, drops the rows and columns corresponding to the variables being conditioned upon, and then inverts back to get the conditional covariance matrix. Here is the generalized inverse of .

Note that knowing that x₂ = a alters the variance, though the new variance does not depend on the specific value of a; perhaps more surprisingly, the mean is shifted by ; compare this with the situation of not knowing the value of a, in which case x₁ would have distribution .

An interesting fact derived in order to prove this result, is that the random vectors and are independent.

The matrix Σ₁₂Σ₂₂⁻¹ is known as the matrix of regression

...

To obtain the marginal distribution over a subset of multivariate normal random variables, one only needs to drop the irrelevant variables (the variables that one wants to marginalize out) from the mean vector and the covariance matrix. The proof for this follows from the definitions of multivariate normal distributions and linear algebra.^[16]

If Y = c + BX is an affine transformation of where c is an vector of constants and B is a constant matrix, then Y has a multivariate normal distribution with expected value c + Bμ and variance BΣB^T .

Corollaries: sums of Gaussian are Gaussian, marginals of Gaussian are Gaussian.

The equidensity contours of a non-singular multivariate normal distribution are ellipsoids (i.e. linear transformations of hyperspheres) centered at the mean.

The directions of the principal axes of the ellipsoids are given by the eigenvectors of the covariance matrix Σ. The squared relative lengths of the principal axes are given by the corresponding eigenvalues.

The distribution N(μ, Σ) is in effect N(0, I) scaled by Λ^1/2, rotated by U and translated by μ.

In the bivariate case where x is partitioned into X₁ and X₂, the conditional distribution of X₁ given X₂ is

where is the correlation coefficient between X₁ and X₂.

the distribution of x₁ conditional on x₂ = a is multivariate normal (x₁ | x₂ = a) ~ N( μ , Σ ) where and covariance matrix

If the covariance matrix is not full rank, then the multivariate normal distribution is degenerate and does not have a density.

I don’t consider myself in the real estate business! I’m in the marketing business.

You will find good deals through effective marketing. You’ll find lenders willing to do no-money-down deals through marketing. And you will employ other marketing techniques to sell your deals at a handsome profit to other people.

It doesn’t matter how much skill you have; it doesn’t matter how much knowledge you’ve accumulated: If your phone is not ringing and the mailbox is empty, you’re not going anywhere

Have a whole bunch of marketing tools to apply to any market at any time.

Create a pipeline of deals presenting themselves through the phone, e-mail, and post office. Once you’ve turned on that pipeline, never turn it off ! It’s your goose that’s laying your golden deals. Deal flow is the engine that drives your business.

Analyze the Deals Once you start getting leads coming in to your business from all of your marketing, it’s time to separate the good deals from the bad. The majority of what you’ll see in the beginning will be worthless deals. No big deal. It’s just the nature of the beast.

build a start-to-finish, successful real estate farming strategy using RPR’s dynamic data and impressive reports, available only to REALTORS ® .

Farming, also known as geographical prospecting, is a proven method of marketing your real estate business to a neighborhood or local proximity in a way that raises awareness of your brand, captures leads, earns referrals, and gains listings.

Property Resource ® (RPR ® ) will provide all of the data and reports you need to execute a profit-yielding endeavor.

A predetermined set of criteria for establishing your farm area will help save time and energy

Operating a farm area outside your normal commute can be a challenge if you want the campaign to be consistent and affordable. A consistent effort includes touch points at least every three to four weeks, on a long term basis, so easy access to your farm area is an important consideration.

know how to calculate turnover

Divide the number of sales in the last 12 months by the number of homes in the area. For example: From your geographic area, 15 houses have been sold in the past 12 months. There are 150 homes in the area. (15 ÷ 150) x 100 = 10% turnover rate. You typically want to see 5-7% turnover rate or higher.

Look to RPR heat maps to determine whether values in your farm area are increasing or decreasing over time.

find the 12-month change in estimated values, list vs sales prices, and the density of distressed properties

Static random-access memory (static RAM or SRAM) is a type of semiconductor memory that uses bistable latching circuitry (flip-flop) to store each bit.

Your goal is to get your brand in front of as many eyes as possible. Yet, you need to sustain your farm campaign consistently, with depth and quality, and with a long-term vision in place. Keeping those costs and available resources in mind is important. The key? Market only to as many homes as your budget will allow, every month … and do so with RPR data.

Look for areas that have a multitude of agents selling with no defined market share. Chances are the area isn’t being marketed heavily by any one agent, giving you an opportunity to consistently brand yourself as the local expert.

Another option is to farm an area that has one exclusive agent with a dominant market share.

SRAM is also used in personal computers, workstations, routers and peripheral equipment: CPU register files, internal CPU caches and external burst mode SRAM caches, hard disk buffers, router buffers, etc.

Start by saving your farm area. 1. Sign onto narrpr.com 2. Select All Properties from the menu option at the top of the search bar. 3. Search the area of your farm area by town, zip code, etc. 4. From the map tools, choose the polygon drawing pen to pinpoint your geographical farm. 5. Once you’ve connected the last point, choose Save and enter a name for your farm so that those boundaries are stored for easy access later on. From this point, you can search your saved farm name from the main search bar. 6. From there, filter your results using the left column variables, such as listing status, distressed, price range, living area, property type and sold date.

Begin by tallying the number of sales in your farm area over the last 12 months.

1. Type the name of your saved farm area directly into the All Properties search box. Then click Search 2. From the search results page, uncheck Active and Pending. 3. Select the Date Range radio button and enter beginning and ending dates. 4. Choose Apply to update the search and generate matches. 5. Next, for a period-to-period comparison, repeat the previous step by adjusting the Sold Date and compare the count of year-to-date sales with the same dates from the previous year.

Real estate brokers will test you. They’ll first see if you buy the deals that they have in house that other investors have passed on.

You must analyze each deal to separate the winners from the losers

There is a tested recipe for buying an apartment complex.

Use the tested recipe for deal creation. Follow simple rules and run certain calculations, and you’ll put quality deals into your portfolio.

7. Create the Offer or Letter of Intent Once you’ve got a deal that you think is a winner, it’s time to make an offer on the property. If you are not making regular offers on properties—I’m talking one or two a week—you are really not in the game

The offer does not mean you will definitely be buying the property. It means that you’re serious, and now want to see the real details behind the apartment complex

When you are buying properties between 2 and 10 units, you will use a standard form to make your initial offer on the prop- erty.

When you’re buying larger complexes, you will use a Letter of Intent.

Throw the ball over to the seller’s court to either accept the offer or counter it. In most cases, the seller will counter the offer

When you enter the negotiating process, you should position yourself so you can get to the best end result. That means following clear principles and steps

determine at what maximum price you can buy the prop- erty. This is called the strike price. If you cannot get the seller down to this price, you then end the negotiations and move on to the next deal.

with your marketing keeping your pipeline full, there is always another good deal around the corner.

start negotiating at 10 percent below your strike price. Let’s say a property is on the market for $550,000. You do your analysis and determine that you won’t pay more than $500,000 for the property. That’s your strike price. If you follow the rule of thumb, you will start your negotiating at $450,000.

Create and Sign the Purchase-and-Sale Agreement After the negotiation over price is complete, it’s time to create the purchase-and-sale agreement (also known as the P&S). This docu- ment outlines exactly how you will buy the property and what the key dates will be.

The date on which both parties sign theP&Siscalled the effective date. All subsequent dates in the transaction are based on the effective date.

You should either use your attorney’s P & S, or one that your attorney reviews and negotiates to protect your interests.

It’s your attorney’s job to get that document to favor you as much as possible. Of course, that’s also the job of the attorney for the seller.

Your attorney will analyze the document and come up with a list of exceptions: items and wording that are not in your best interest to have in the document. You’ll get a list of these exceptions and the negotiations will begin

One common exception relates to key dates. Most deals allow 30 days for due diligence to be done and another 30 days to close the deal. This means you are closing the deal in 60 days. Be sure to surround yourself with a team that can meet this very short deadline, or you’ll lose deals to your competition. The person who offers the same amount of money—but gets that money into the seller’s pocket first—wins.

Whenever you can, try to get 45 days for due diligence and another 45 days to close. Doing everything you need to do to close on an apartment complex—and doing it right—takes time. Still, stay alert to whether your competition is offering to close more quickly; you may have to cave on this point to save the deal.

Another common negotiating point relates to the down payment. The seller will typically request between 1 percent and 5 percent for a down payment. The most common request for a smaller property is 3 percent to 5 percent, and for a larger complex, it’s 1 percent.

This money is usually refundable until your due diligence period is over. At that point, it becomes hard, which means you can’t get it back. You must know your dates: Miss a date and possibly lose some money.

Whenever possible, get a third party to hold the due diligence money (also known as the down payment or deposit). Your attorney is the best choice, but that rarely happens. The broker’s attorney or title company is usually the third party; sometimes the seller’s attorney will be required to hold the money. The one person who should never, ever, be allowed to hold the down payment money is the seller!

another reason not to allow the seller to hold the down payment: It puts you in a weaker negotiating position.

another negotiating point is the title work and the survey. In most cases, the seller usually pays for the title abstract work and for an updated survey of the property. More and more sellers are negotiating to have the buyer pay for these services.

You will usually be required to send over the down payment money within 48 hours of signing yourP&S(orletter of intent).

The P & S is the most important contract that you’ll sign before the closing. It’s well worth the money to have your attorney actively involved on your behalf

Now that the ink is dry on the P & S, it’s time to start doing your due diligence, which is a Wall Street term for your in-depth property research. During your due diligence, you make sure that the deal you thought you were making an offer on is in fact the deal that exists.

Due diligence is broken down into three categories: financial, phys- ical, and legal.

The first information you usually get when doing your due dili- gence is financial. As should be stated in your P & S, the seller is required to forward to you all the financial information you need within 14 days.

When this information comes in quickly, the deal usually goes smoothly. When it comes in late, or in bits and pieces, either the seller doesn’t keep very good records, or the seller is trying to hide something

The information you’re requesting is: r Last three years of operating statements presented on a 12-month trend report r Year-to-date profit-and-loss statement r Balance sheet r Last 12 months rent roll

We’re highly focused on the income aspects of the property, because you created your offer based on the income.

f the seller can prove the income, great: The deal continues for- ward. If the seller can’t prove the income, it’s time to go back to the negotiating table. You want a lower price that makes sense with the new information you now have. Some sellers will agree to renego- tiate, and others won’t. You must be prepared to walk away.

your marketing and deal flow are so vital.

After you’ve confirmed the financial information, you can start on the rest of your due diligence. Do not start any other part of the due diligence process until the financials are done, because the physical and legal due diligence will begin to cost you money.

If you walk away from the deal during the financial due diligence, the only money you have spent is your deposit, and you will get that back (assuming a third party is holding it, not the seller!). Any time during the due diligence period, if you decide for any reason that you want to be out of the deal, you get your deposit back.

The first thing you do when you start your physical and legal due diligence is to hire a competent attorney to do the title work. The attorney will check that what you think you’re buying is in fact what you’re buying. He or she will review the legal description, previous owners, how the property was transferred previously, easements, and mineral rights. You’ll then receive a report. Either the deal is clean or it may have some issues that need to be resolved prior to closing. A good attorney will make sure that all issues are resolved before the closing. That way, when you resell the property, you won’t have any issues and you can collect your profit.

You then hire a competent engineer to do the physical due dili- gence, which is a property inspection. The engineer will check all major mechanical and structural systems.

The engineer will check all major mechanical and structural systems. On larger properties, he will do a survey of the apartment units. On smaller properties, he will go into every unit

After you get the report, you’ll set up a time for you to walk through every single unit on the property—if you’re smart. I know this can take a while. I recently walked a 344-unit property with another member of my team. It took two days

When you walk the units, what you’re looking for is the common problem. Every property has a common problem. It’s your job to find out what it is. Perhaps it’s the fact that all the faucets and handles are 20 years old and there are now repeated service calls to replace them, one by one. Maybe it’s outdated or worn carpet; it could be older appliances that will need to be replaced on a regular basis. It could be fraying cabi- net doors, leaking air conditioning units, or overflowing condensers. Every property has a common problem. Don’t stop until you find what it is, and allocate resources to counter that problem.

While you’re doing your walk-throughs, you should be talking up the staff. You should find out who’s good or bad

The engineer or inspector will have to provide you with key in- formation, such as what immediate repairs need to be done to the property, his estimate of costs, and, among other things, whether the property is properly zoned.

If everything works out okay during the inspection phase, then you’re ready to get the financing.

The inspection may have revealed problems that the seller didn’t tell you about. I don’t mean trivial stuff, which you can expect to find on every property. I’m talking about problems that will cost you a chunk of money: a bad boiler, a roof replacement, dry rot in the walls. If that’s the case, it’s time to renegotiate the Deal

How to Get Your First Deal 37 valuable. But we were spending over $9 million for the property and I was using other investors’ money to buy the deal. I wanted to make sure I knew that property inside and out. When you walk the units, what you’re looking for is the common problem. Every property has a common problem. It’s your job to find out what it is. Perhaps it’s the fact that all the faucets and handles are 20 years old and there are now repeated service calls to replace them, one by one. Maybe it’s outdated or worn carpet; it could be older appliances that will need to be replaced on a regular basis. It could be fraying cabi- net doors, leaking air conditioning units, or overflowing condensers. Every property has a common problem. Don’t stop until you find what it is, and allocate resources to counter that problem. While you’re doing your walk-throughs, you should be talking up the staff. You should find out who’s good or bad, naughty or nice among those property personnel. They don’t realize it but they’re actually in a job interview. You may be buying that property. There is no better employee than one who knows the property well and does a good job. There’s no worse employee than one who knows the property well, and also knows how to slack off and steal from you. During this walk-through process, you should mentally put current employees into these two categories, subject to later confirmation, of course. The engineer or inspector will have to provide you with key in- formation, such as what immediate repairs need to be done to the property, his estimate of costs, and, among other things, whether the property is properly zoned. If everything works out okay during the inspection phase, then you’re ready to get the financing. The inspection may have revealed problems that the seller didn’t tell you about. I don’t mean trivial stuff, which you can expect to find in every property. I’m talking about problems that will cost you a chunk of money: a bad boiler, a roof replacement, dry rot in the walls. If that’s the case, it’s time to.... 11.

Another term for renegotiating the deal is called retrading. If you plan on buying a lot of properties and doing a lot of business with key brokers, you don’t want to get the reputation of a retrader.

These are investors who will nitpick a deal and try to squeeze every last dollar. Sellers hate them and so do brokers.

Make doing business with you easy and you’ll do way more business.

if something comes up that will cost you a chunk of cash, it’s time to go back to the seller and say: “Mr. Seller, you didn’t tell me that the boiler would need to be replaced. That’s a $15,000 job. I’d like you to give that money back out of the sales proceeds at closing. That sounds fair, doesn’t it?”

Sometimes, you’ll find that your walking away will make the seller want you back. Other times, you’ll simply walk away.

notice that I asked the seller to give the money back at the closing? That’s called a repair allowance.

If you have the seller give it to you at closing, then your financing will be funding that repair. Banks usually allow you up to 3 percent of the purchase price for such repair allowances.

You will finance your deals from three primary sources: local banks, national lenders, and conduits.

Local banks are usually good for construction loans for multi- families. Their rates on regular loans are higher than other lenders, and their amortization schedule is usually shorter. (In other words, they want the money back sooner.) They typically write their loan over a 20-year period instead of a 25- or 30-year period. If you are doing a construction loan for a repositioning, you’ll need to use local lenders.

banks won’t lend out of their geographical area for a repositioning; your only choice is the local guy.

You’ll need a construction loan when repairs exceed 3 percent of the purchase price and you’re planning on financing the repairs into the deal.

You’ll need a bridge loan when the property is less than 85 percent occupied. This occupancy level is called stabilization. You get your best loans at the lowest rates when you are buying stabilized properties. These properties also typically generate cash flow from Day One.

call cash-flow-generating deals momentum plays because you have momentum in your favor. Your property is stabilized and cash flowing the day you buy it. National lenders and conduit lenders love these deals.

National lenders are big enough that they don’t hold on to all the loans they make. Instead, they sell some of the deals to secondary markets. The key secondary market players are Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). They buy mortgages from the national lenders, so those lenders can now fund even more deals.

Fannie Mae and Freddie Mac are great to do business with. They usually offer lower rates to close the deals, but they like their deals to be clean. They’re looking for stabilized properties. They don’t want to do a lot of repairs. One more thing: They like to see pitched roofs. They have a thing about flat roofs, because the flat design tends to result in more maintenance problems. They will finance properties that have them, but they won’t like it.

We want to keep our lenders happy so they keep on lending to us! They also like to see an upward or stable trend in income for the last six months. This is called the six-month trailing report.

You may want to finance through a conduit lender if: r Your deal is a little messy. r The numbers aren’t totally complete. r You’ve only started to stabilize over the last two to three months. r The property has a flat roof. A conduit lender gets its money from Wall Street, insurance com- panies, and investment houses. Conduit rates will be a little higher, but they’ll do deals that have a little edge to them.

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get a good mortgage broker on your team.

Mort- gage brokers will have a stable of Fannie Mae, Freddie Mac, conduit, and local lenders that they do business with regularly.

www.MultiFamily Millions.com and put in the keyword broker.

Choose a Management Company While all this is going on, you should also be lining up your man- agement company.

irem.org web site. IREM stands for the Institute of Real Estate Management. Go to this site and look for Certified Property Managers (CPMs) or Accredited Residential Managers (ARMs) in your area.

Property managers specialize in certain properties. Make sure you match the property manager with your property type.

This company was indeed expert at managing high-end properties. But mine was a low-end property. They didn’t know how to attract that type of tenant base, and were over-screening the tenants. They also were repairing my vacant units as if the CEO of a company was going to move in. When I asked them about this, they told me: “We have high stan- dards, and we aren’t going to compromise them.” I told them that I, too, had certain standards, the first being that I make a profit while providing a safe, affordable, and clean place to live. If I don’t make the profit, I can’t provide the housing.

Close the Deal All the pieces are now in place. The only thing left to do is to finish the financing paperwork. You are ready to close the deal. When you buy smaller properties, you’ll close in the title office or an attorney’s office.

With bigger complexes in emerging markets across the United States, the lender will mail you a document package overnight. You’ll sign it in front of a notary, and send it back overnight.

The seller will do the same. Then you wire the funds over on the appropriate day and you’re the proud owner of the property. You now turn it over to the management company.

Buy and Flip When you’re starting out, you have very little time and less money. One option, therefore, is to flip your deal for a quick profit. When I say flip, I mean you put a property under contract, close on it, and immediately sell it to another party to realize your profits.

To flip a property, you must be buying the property under market value and you then resell it at market value to another investor.

Why would people sell a property to you below the market value? There are many reasons: r They may have inherited a property they don’t want or don’t know how to run. r They’re in foreclosure. r They could be in bankruptcy. r They’re a burned-out landlord. r They see profits starting to drop and want to get out while they still can. r It may be an estate sale. r They could be trading up to a bigger property. r They’re retiring from the game. r They need money quickly to fund another venture. r They need money even more quickly to pay taxes to the IRS. People sell below market value for these reasons and more.

I want systems in place to attract these motivated sellers continuously.

The mortgage amount is $311,000. You agree to purchase the property for $311,000. You could make your profit on this property in two ways: 1. You could assign the property to another investor and get an assignment fee, or 2. You could close on the property and immediately put it back on the market to resell it

The Assignment Process Let’s look at how the assignment approach works: When you create the offer to buy the property, you put your entity name in as the buyer of the property. (Never buy in your own name, for asset-protection purposes.) After your entity name, you put the phrase: and/or assigns.

when I’m buying a property, I usually buy in a limited liability company (LLC). For simplicity, I usually call the LLC by the same name as the street address of the property.

if I buy a property on Market Street, I name the property Market LLC.

If I’m purchasing the 284-unit Mag- nolia Park apartment complex, I name it Magnolia Park LLC.

be sure that whatever name you give to the LLC, add to the end: and/or assigns. This allows you to assign the contract to a third party. You will receive an assignment fee before any closing, and the third party will close on the property. The benefit to you? It’s the very fastest way to get money after putting a deal together. The downside is you don’t get the big lump sum that might be yours from the property down the road.

The size of your assignment fee depends on how well you negoti- ated the deal, and how much equity is in it. On smaller properties, most investors will not buy from you unless they’re making at least $20,000 on the transaction. That’s the low end. Thus, if you want to make a $5,000 assignment fee, you’ll need at least $25,000 in equity. When I say equity, I mean the net amount of proceeds in the deal after taking the market value and deducting any costs associated with it.

Most assignment fees are between $5,000 and $10,000 on smaller deals and as much as $100,000 to $500,000 on bigger ones. Not bad, huh.

A $52 million portfolio. The person holding the contract is willing to wait for his $1.2 million until after we close. That’s good, because I can now finance that right into the deal

When you are assign- ing a contract over to a third party, never wait until the closing to get your assignment fee!

We do not sell the same way we buy. You should not wait because you want your buyer to have some skin in the game. You want him to put up cash so there is a high probability he will close.

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you want the seller to pay the assignment fee beforehand: If he doesn’t, he may decide to renegotiate with you as you are getting close to the closing. If this happens, you’ll be negotiating from weakness: You need him to close to get that deal done and get your money.

The only time you should assign a deal is if you need money quickly, or you’re so busy doing other deals that you don’t have time to do anything more with this one.

stick with the deal and get that pot of gold that’s waiting at the end of the rainbow. The way to do that is to take the deal through closing, and then sell at the market rate. So instead of having to assign the deal to someone who will make his profit by selling it at market rate, you’ll get that profit, too. It will mean that you have to arrange your financing, and close, and then prep the property for resale (most likely cosmetic repairs). This is still a flip, because you’re not holding on to the property for any length of time. It’s just that for your work in closing the deal, you get more profit.

begin the marketing process to sell that property as soon as you get it under contract. Not after you own it, but just after you have it under contract.