Deciphering Those For-Sale Ads

So you’ve decided to buy your first apartment building. Most first-time investors start their search in the classified advertising section of their newspaper. But unless they have done a lot of homework, their first experience with a classified ad for an apartment building can be a jolt.

Here’s what you might read:

10U, N.H. SGI $57k. BE W/30% dn.

Or, 12U BR. 4% COC After V&M.;

Every business has its special language, and these examples, taken from classified ads for apartment buildings, contain commonly used abbreviations and terms among apartment house investors and brokers.

Unless you know what the abbreviations mean, it’s impossible to understand an ad. By learning the language, however, you’ll find that a well-written ad can quickly help you evaluate a building and save you much time in your search for the right investment.

Let’s demystify our two examples:

10U, N.H. SGI $57k. BE w/30% dn. This ad offers a 10-unit building in North Hollywood. The SGI is scheduled gross income, which refers to the amount of rent money you’ll collect every year, in this case, $57,000. BE is break-even with a 30% DN for down payment.

Therefore, if you invest 30% of the selling price as your down payment, you will own a building where the rental income covers all expenses and debt service; commonly called a break-even.

Or 12U BR. 4% COC after V&M.; BR indicates masonry construction (brick), and alerts the investor who specializes in brick buildings. The abbreviation COC stands for cash-on-cash return. V&M; is short for vacancy and maintenance. Consequently, this ad offers a special type of apartment that will give you a 4% return on your down payment (cash on cash invested) after all expenses, including allowances for vacancies and maintenance through the year.

Here is a glossary of the most common abbreviations and terms:

BCH: Bachelor. Apartment without a bedroom and kitchen. May have a small electric appliance for boiling water.

BE: Break-even. No cash flow, but rents take care of expenses.

Bricker or BR: Building is constructed of bricks and subject to earthquake rules and regulations. May or may not be reinforced.

COC: Cash-on-cash return. Example: your down payment was $100,000, and your cash flow at the end of the year is $2,000. This is your cash-on-cash (down payment invested) return, which is a 2% COC.

CF: Cash flow. After all expenses are paid and all rents collected, any actual cash left over that you can put into your pocket is cash flow.

CPU: Cost per unit. A tool to determine value, according to age of building, neighborhood and “mix” of units. A 10-unit apartment selling for $150,000 would have a $15,000 CPU.

CTNL: Cash to new loan. Owner will not carry a second trust deed, but expects you to pay all the cash required to the new loan from the lender to make up the sale price.

GRM: Gross multiplier. A tool for estimating property value, based on income and a previous sale in the neighborhood. A building with $50,000 in annual income could be listed for $500,000 in an area where buildings sell for 10 times gross.

GSI, AGI: Both refer to income. Gross scheduled income (also referred to as SGI, scheduled gross income) means the amount of rent money you should collect monthly assuming that all units are occupied. Annual gross income is the monthly income amount multiplied by 12.

Land Value: Property is being sold for future build-out potential. Quality of improvements and rents are not important.

Master Metered: Since there is only one utility meter to the building, the owner pays for all of the tenants’ utility bills. Common in older buildings and particularly in brick buildings.

Mix: Division of units within a building. Example: four two bedrooms, six one bedrooms and three singles.

No RC: No rent control. Indicates that the apartment is in a city without rent control, or that units are exempt from rent control for another reason. (Ads generally do not say that properties are rent controlled; since from the owner’s viewpoint, there is no advantage to rent control.)

OWC: Owner will carry part of the financing. Sometimes a first trust deed, which saves you from going to an institutional lender, but more often a second trust deed.

POP: Pride of ownership. Property that is exceptionally well maintained, and suitable for an owner to live in one unit, while renting out the others. Additional value is attributed to the building because of its condition and style.

SF: This one’s easy. Square Feet. Investors always want to know square footage of improvements and land. Determining value by square footage is an important measuring tool.

SNGL: Single. Apartment without a bedroom.

SEP Meters: Each tenant pays his own gas and electric bills because there are separate utility meters for each unit of the apartment building.

V&M;: Vacancy and maintenance. Loss of rents occurs when a unit is vacant. An apartment house owner must project how many units he may have vacant through the year, and add that cost (loss of rents) to his estimate for annual maintenance costs (plumbing, painting, repair, etc.). Since every owner’s expertise in operating a building varies, the percentage for V&M; will differ greatly.

Gibbons is an independent realtor who has specialized in apartment house investments since 1979.