All Forum Posts by: Nathan E.

Just to close the loop, I did not end up investing in this property. I dont believe it would have been a terrible decision, but I saw a few risks, namely in the property condition, rent increase, and HOA.

Best Regards,

Nate

@Josh D. The local REIA, here in Orlando has been great, an invaluable resource. And thank you for the offer to answer questions. I may take you up on it!

@Bob Bowling Great article. To quote the conclusion:

"Direct Capitalization is convenient, but then so is the microwave. Take some advice and use it as a way to measure how expensive a property is in relation to similar properties currently, not whether it’s a good long term investment. For this, we look to Yield Capitalization."

I do however question with your suggestion to use GRM over cap rate, since it doesn't take into account expenses. I think that most investors want to look at as many metrics as possible, GRM, Cap Rate, and IRR to name a few, to really understand the nature of the deal. As long as you understand what the numbers mean, dont put garbage into your calcs, and understand the market in which you are operating, life is good.

@Account Closed Yes, correct. Cap rate is set by the market, not calculated. Thank you for the correction.

I'm calculating NOI/purchase price. Similar to cap rate, but I'm not sure what this would be called. It seems like a useful metric nonetheless for comparing deals before any financing is considered.

Now that I have been thinking about it, It makes a lot of sense to include management expenses in the cap rate calc. I am willing to manage for better returns, but the underlying deal has to be able to support its self.

Here you see the cap rate at 7.5%, a little low it seems. If anybody has any input on the expenses, let me know. With 10% for management, 5% for maintenance, another 5% for reserves, HOA fees etc. The expense ratio comes to 60%!

@Josh D.

Thank you for the detailed advice! I get that I might not be conservative enough with the unknowns. I'm interested in your take on including management fees in the calculation of metrics. I'm looking for at least 10% cash on cash, but this is not accounting for my management time. Am I selling myself short?

To me this is an ok to not-so-great deal only. Around 11% cash on cash without management, less with. What returns do you guys look for in Tampa?

Thanks!

Nate

I am also weary of rentometer, but this condo is in a dense rental area so the rental comps are numerous. I feel comfortable about 800+/mo.

I also considered conventional financing, but the numbers are so close that I'd rather not deal with a bank. What are interest rates for investment properties now 5.5%?

I have a verbal contract for a 2 br 1 bath condo. This is my first investment property purchase so I am analyzing the heck out of it and looking for advice from the experienced community.

Purchase Price: 65,500

Income: currently at $750 lease through Oct. Rentometer and research suggests that this is low. I can get 800-850 for this unit.

Expenses: Taxes:850; Assoc Fee: 840/yr; self managed.

Repairs: The property looks good, but I have yet to do an inspection. It looks to have had tile floors and paint and appliances not too long ago. I am assuming only regular maintenance costs 5-10%/year.

Financing: The seller is offering financing. I am looking at a 25% down, 6% interest, 40 year amortizing loan for a payment of $270/mo.

Thanks in advance for your input.

Nate