Invest in Portland

The following certifications are widely recognized within the financial services advisory industry:

* Accredited Estate Planner (AEP)

* Certified Financial Planner (CFP)

* Chartered Financial Analyst (CFA)

* Chartered Investment Counselor (CIC)

* Insurance Agents

> Chartered Financial Consultant (ChFC)

> Chartered Life Underwriter (CLU)

* Personal Financial Specialist (PFS)

This short list of certifications was constructed using several sources. First, many other certifications require these certifications as a prerequisite. Second, when registering as an adviser with certain states, some of these certifications can substitute for passing various tests administered by the North American Securities Administrators Association, Inc. (NASAA) Third, Form ADV, which is used by the SEC and most states to register advisors, explicitly lists many of these particular designations. Finally, these designations are mentioned more frequently in the financial planning literature and on financial and investment websites.

Accredited Estate Planner (AEP)

The AEP is conferred by the National Association of Estate Planners and Councils (NAEPC). To obtain the AEP an applicant must:

* hold an attorney’s license, CPA, CLU, ChFC, CFP, or CTFA

* be professionally engaged in “estate planning activities,”

* have at least five years of directly relevant experience (or 15 years to exempt the educational requirements)

* take certain required courses from the The American College or take two “challenge exams”

> (See the ChFC and CLU listings below for more information on The American College.)

* have membership in an NAEPC council,

* submit references, and

* commit to the NAEPC code of ethics.

Certified Financial Planner (CFP)

The CFP is conferred by the Certified Financial Planner Board of Standards Inc. (CFPBS). To obtain the CFP designation, a candidate must have either five years of personal financial planning work experience or three years and a bachelors degree. He must pass a comprehensive examination. To take this examination, he must either complete a course of study offered by various educational organizations, or he must already hold a CPA, ChFC, CLU, or CFA designation or a Ph.D. in business or economics, Doctor of Business Administration, or an Attorney’s license. The CFPBS has an on-line consumer complaint and practitioner disciplinary process, and it supports on-line professional status checking and referrals.

According to the CFPBS, it is “a nonprofit regulatory organization (that) fosters professional standards in personal financial planning so that the public values, has access to and benefits from competent and ethical financial planning. CFP Board owns the certification marks CFP

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So it’s the weed-’em-out time once more and this time, the ones to face the rake is the clan called Financial Advisor. The set definition of a financial advisor bars us thinking anything beyond the stressed out type reeking of Wall Street, but there is much more to this profession apart from buying and selling orders and attempts to generate as much money for their clients as possible. This is largely due to the fact that people haven’t yet have come out of the mold that was set half a century back, but in the new millennium, the practice is based on a more comprehensive approach encompassing investments, insurances, budgeting, retirement planning, tax-paying and funding for education or estate. All these require a financial advisor to hold a sound record during his training and in his practice; therefore, a little lowdown on finding a financial advisor who can take you a long way. Let us start with what a comprehensive financial planning means.

True Comprehensive Financial Planning

Financial planning is a field that started evolving of late, shunning away the former theory of save today, spend tomorrow to figure out your wants today and plan accordingly. This is essential to make finances available for the hidden dreams; therefore, a true and comprehensive financial planning allows a person to enjoy and save at the same time. This defines somehow what it should be like and a true and comprehensive financial planning should be able to:

Address the importance of the dream of a client. Focus to the maximum extent on a specific goal. Make available the funds when there is a need.

The above points together create a tricky situation and a financial advisor is thus to be selected after verifying completely whether he is the best one to shape the thing properly.

What to look in a Financial Advisor?

Knowledge, Qualifications and Expertise: A minimal educational standard proves like a gun without the safety-catch for financial advisors. Clearing a NASD general securities exam is not everything to become a financial advisor; it is a clean chit in the Series 6, 7 and 63 exams that’s required to meet the regulatory requirements of the industry. Besides, the three leading designations of the financial planning sector ensure strict educational and ethical requirements. These are: CFP (certified Financial Planner

Cap rate or capitalization rate or just cap is the ratio of annual rental income of the property over the purchase price. This number is often shown on commercial property listings. So you must know this jargon if you want to invest in commercial real estate. It’s commonly a number between 3% to 10%.

For those who invest in the stock market, cap rate is the equivalence of the inverse of P/E ratio. So a cap of 5% is equivalent to P/E ratio of 20. The main difference is in real estate the earning is real while it’s accounting earning in the stock market where earning can be reinstated years down the road!

The higher the cap the higher rental income the property produces and thus the less money you need for down payment. Experienced investors often look at the cap to screen out properties with low rental income. Some investors prefer properties with the cap that is higher than the interest rate they pay for the loan. That way they know they collect more from the tenants than they pay the bank.

When the property has high vacancy rate, listing brokers often show proforma (or potential) cap instead to catch investors’ attention. Let’s use the following example to illustrate the point. A property is listed for $1M and is 90% leased. It has gross leases with an actual gross income of $90K/year and $30K of annual expense. Assuming the proforma income is $110K/year when it’s 100% leased at higher market rent. So 3 different listing brokers could display 3 different cap rates for the same property:

o The first broker may use NOI (Net Operating Income) of $60K/year ($90K of gross income less $30K of expenses) and thus the net CAP rate is 6%. This broker calculates the cap the way it should be.
o The second broker may use the gross income of $90K and so the gross CAP rate is 9%.
o The third broker may want to use the proforma income of $110K to get investors’ attention and thus the proforma CAP rate is 11%!

So as an investor, you need to know what cap, e.g. net, gross or proforma the broker uses. Otherwise you may offer too much for the property. At the same time, when you tell your broker to look for properties with a certain cap rate, make sure the broker knows what cap rate you have in mind.

The returns of a commercial property investment come from 4 sources: appreciation, cash flow, i.e. cap rate, depreciation (tax writeoffs), and principal reduction from your mortgage payments. If you invest in the “right” property, the biggest chunk of your investment return should come from appreciation. There is often a conflict between cap rate and potential for strong appreciation. Properties that offer potential for strong appreciation, e.g. newer properties or ones in good location tend to have lower cap rate. On the other hand, properties that are in poor condition, or have ground lease are much harder to sell. As a result, seller will try to attract the buyers with a higher cap rate. If you see a property with unusually high cap rate in California, e.g. more than 7%, you should ask yourself “what’s wrong with this property?” Chances are you will find a compelling reason why it is so high.

Is the property with highest cap the “best” property? The short answer is no. If investment was that simple, you would not need an investment advisor. Cap rate should be one of the various other factors you consider whether you should invest in a property. It should not be the only factor. Besides, you can improve the cap by

o Increase the occupancy rate.
o Raise the rent when the current leases expire.
o Negotiate for leases with annual rent increase.
o Improve the property to attract more upscale tenants.
o Reduce the expenses not reimbursed by the tenants.

By doing so, you can increase the cap rate and consequently the value of your investment.

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