Property Expenses & Cap Rates

[Sheldon Peart]

Hello Everyone,

I have two quick questions. We are currently looking for our first real estate property; multi-family to be exact, and have some questions regarding expenses and cap rates:

1. Operating expenses - I have requested this from multiple properties in order to try and place a value on the asset, but I am just getting a very simple spreadsheet with rents and expenses. I understand this is a great way to track investments, a spreadsheet is how I track all our other investments also. My issue is, are the numbers real? So my question to BP members is: is there any type of verifiable document for rent roll and operating expenses other then a spreadsheet? I understand sellers will conveniently show low expenses, I look at expenses with a critical eye and not naivety.

2. Cap Rates - how do I find out cap rates? I know the cap rate is an outcome of the NOI/Purchase price, but what if you are trying to determine the purchase price and only have the NOI variable, how do I find the Cap Rate? My logic is telling me that either I call brokers and property managers, or I determine what cap rate I am comfortable purchasing at and find properties that fit those parameters.

Thank you for your time and look forward to the advice, 

Sheldon

[Michael Brattelli]

Hey Sheldon,

My recommendation would be to talk to an agent to help you with the comps for the property. Buyers agents costs you very little to nothing and if you find one that is ready to go the extra mile to help you find your deal then it's a no brainer. Ultimately whatever you end up paying for the property is going to go into your equation to determine your cap rate. As far as figuring out operating expenses, if you cannot get a good sense on what the operating costs are going to be from the info provided from the seller, it wouldn't hurt to start talking to some local property managers. If you find a good one, they may be able to give you some pretty accurate numbers on expenses. Hope this helps.