All Forum Posts by: Barry Ruby

@Justin Anthony

Can you please provide a bit of detail about your software?

What does it do?

@Will Crayger

Will,

COC (cash on cash) measures the return realized in a given year to the cash (equity) invested to earn it:

$100,000 annual cash flow / Equity = 10%

If the property is held for a period of years, the coc can be calculated by adding the total cash flows received over the holding period and dividing the total by the equity invested and dividing that amount by the number of years the property was held.

ROI (return on investment) measures the overall return realized (which includes all cash flow and cash proceeds) divided by the total capital invested in the property:

$1,000,000 cash flow and net sales proceeds/ $4,000,000 investment = 25%

@Rene Martinez

Knowing the income generated by a commercial asset type is a central data point that is required to apply to a range of figures and metrics.

Financial literacy and the ability to run pro forma analysis should be your primary priority.

The probability of success without having the knowledge and skills required to analyze a property is slim to none.

Your best bet is to use the BP calculators to practice underwriting and understanding how a deal works.

Feel free to message me if you need help getting started.

@Joe Villeneuve

BINGO!!!

@Joe Villeneuve

BINGO!!!

@Timothy Christian Jr

Timothy, a good way of thinking about a "good" cap rate is to view it as the cash on cash (ROE) return realized on the UNLEVERAGED (before debt service) NOI in exchange for the price paid to receive it.

For example, an NOI of $100,000 with a $1,000,000 price produces a 10% ROE

$100,000 / $1,000,000 = 10%

In the case above, the 10% return also represents the Acquisition Cap Rate.

The NOI and the buyer's target acquisition cap rate should be based on ACTUAL T-12 performance.

Any costs, increased income and debt service associated with the Value Add aspects of the project should be considered built on the “as is” price paid to acquire the asset.

Lastly, a number of assumed holding periods should be run on both the as-is and Value Add scenarios to assess how each works relative to the cap rate applied to its acquisition and sale, aka the Exit Cap Rate.

@Jason Lauver Jason, do you have a good handle on how to underwrite the deal?

Let me know if you need help with the analysis and I’ll send an Excel workbook to you that I built for my son.

@Andrew Benton

If the rent that the property can generate covers the nut and a reasonable return,

It’s a good time to do the deal.

@Niv Calmy

Niv,

Your architecture experience gives you a great head start in getting to where you want to go.

The most valuable thing that you can do for yourself is to gain financial literacy and the skills necessary to fully underwrite a project.

Let me know if you need any assistance in doing this.

@Derrick StClair

Derrick it’s not cost effective for me to do dinner with you, but if you need help with the numbers, let me know and I’d be happy to assist you with your underwriting and development issues.