All Forum Posts by: Adam M.

Yeah CPA for sure. Not sure how your legal status affects you but basically anytime an asset generates cash for you expect to pay taxes. If you make money on rent you are likely gonna be taxed. If you sell for higher then you bought you are gonna pay taxes. Some tax liability from rent income can be reduced via depreciation. Also if you incur losses you can get a tax shield and use that to reduce you tax liability on future earnings.

I would avoid ARM like the plague. Mortgage is one of the few expenses you can actually predict. What are you budgeting for maintenance expense?

@Mike Dymski I hope your not paying your investment manager much. LendingRobot/NSR already have a management fee.

Doesn't mean you shouldn't budget a certain amount per month to be set aside. From an accounting perspective you'd have a replacement reserves account for the property and assign part of the cash inflows from the property to that. Then when you incur a large expense related to that property you charge it to that account.

Agree w/ @Roy N. NOI is operating CF. General wear and tear should be calculated into your maintenance expense. CapEx is expenditures outside of general operating.

From a financing perspective a key metric the bank will look at is the Debt Service Coverage Ratio (DSCR). Which is Debt Service/NOI. 2+ is solid. 1.1x-1.5x is shaky.

With any real estate you are also gonna want to look at values with relation to square feet. With retail space key figures are Rent/Sqft. Price/sqft. A good way to learn what matters is to look at the annual reports of REITs that focus in the types of properties you are interested in. If they are reporting these numbers to investors you should be using them for your comparative analysis. 

But as I said cap rate is somewhat arbitrary and you can lower you cap rate by paying too much or having an asset that doesn't generate a lot of income. Family has farmland that has been passed down and it has a cap rate of like 1% LOL

Check out this book. https://www.amazon.com/Estate-Investor-Financial-M...

It does a good job of explaining the math behind a lot of the metrics commonly used. Although it also calculates cash-on-cash the way you did it. At the end of the day they are all just metrics and as you keep analyzing properties you will get better at sensing when something in your analysis is out of wack or if a "deal" is actually a deal.

Uhh I have seen A LOT of people use that to calculate their cash on cash return and I guess if you are trying to be conservative in your estimates (which is a good thing) it kinda makes sense. But at the same time you are gaining equity in the property (or at least should be) so it should be taken into account. My oldest brother is a commercial real estate appraiser with one of the largest real estate companies in the world and that is how they do it so I am not gonna disagree.