All Forum Posts by: David H.

I actually don't use the 2% rule.  I use gross rent multiplier and try to target 40-60x rent 

I actually don't use the 2% rule.  I use gross rent multiplier and try to target 40-60x rent 

it is a form of yield called sales yield. Commercial guys like to use the gross rent multiplier, which is the inverse of this sales yield. Actually,i never heard of the 2% rule until i joined bp. When i studied finance in b school and studied for my CFA, we usually looked at price to sales ratio and sales yields as a comparative analysis to quickly diagnose financial statements and valuation. We also looked at expense ratio to sales, fixed cost, and EBITDA, which is akin to what people on bp will call NOI.

  East side has fatter margins if you want to hold because it's not the hot area where the out of state guys are bidding up. If you want to fix and flip, those old shotguns around esplanade or st Claude or central city work, but you need to be professional and on point. Margins are thinner and you might not make anything trying to flip and learn.

do your first deal in the east and get it rented. Try a 203k loan. Worst case you have a house you can live in for $650/mo that you customized. Avoid townhouses and condos. Keep traffic patterns in mind and pay attention to how far away you are from the u turn if you're on the south side trying to go west on i10. It's preferable to travel less than travel more...

So many people over think this.  I like to take a stock valuation analogy and think about it like return on assets vs. cost of debt.  The asset needs to generate a return that's higher than the cost of debt in order for it to be a "good" investment.  This allows me to look at the market rate of debt, compare it to the Cap rate, and see if I can make money on the deal.  If my lender is offering debt at 4% and Cap rate is 6%, I can stop right there and see that I can harvest a 2% spread since my asset is generating a return higher than my cost of debt.  Volatility of the Cap rate needs to be factored in to see if the spread is adequate.

If I was renting office space to the US Treasury at 4.25% Cap rate, and all of my expenses were locked in for the next 15 years, I could reap the 0.25% spread over my cost of debt.  It's not a huge profit, but it's a safe profit.  Now if I had equity (office not 100% financed by debt), I need to make sure that the equity holders are satisfied with the 0.25% spread on the debt + 4.25% on the equity.  If you want to get technical, you gross up the levered return to adjust for taxes.

Don't listen to the Cap rate haters.  Just learn how to use it and understand how not to use it.

Cap is largely driven by your tenant.  Find a good tenant (minimum 5 year lease) and you'll get a low Cap.  However, good tenants will shop, and you may have to lower the price to attract them.  Get lower quality tenants?  Well, your Cap rate goes up, but so does your rent, so what you do is you maximize for value taking both into consideration.

Given that you're talking about a small office, you're probably not renting to one of the big AAA rated corporations ready to sign a 5/10 lease.  Try to find someone like a professional (lobbyist, doctor, establish law firm).  Consider giving them a pre-lease discount up front in exchange for a market rate rent after the first month or two to entice them in.  Also, if you can get them to post up a 3 mo security deposit and/or sign personal guarantees, this can provide additional stability and certainty to the lease.

Getting lower quality tenants who might pay higher rent and providing a margin of safety with a higher security deposit is one of many ways you can lower risk for a potential buyer which increases value for you.

 We're at the end of the down phase in the real estate cycle.  I've been getting 2% for a while, but my most recent deal was $90k renting now at $1650.  My next deal is a $50k that will rent for $1300.  I'm not expecting to get a whole lot more of these in 2015.  I think I got lucky in timing and was prepared with financing to pull this off.

Bottom line, if you want class B 2% homes, get them now.  Next year, you will need to move to class C to get these kinds of yields.

I have a vacant office on a somewhat busy street that I just can't get rented.  I've tried advertising on loopnet, craigslist, and via a local broker.  I tried various price points from $1400/mo down to $500. . . yes $500.  I'm not really getting any interest no matter the price point.

I'll cut to the chase on the conversion. I advertised the office on a syndicated website that blasted my office to a bunch of websites, and my phone started ringing constantly for people looking to rent a home.  That got my to thinking that I should convert this over to a home.  I would need to install a shower, stove, and W/D hookup.

I checked with the Parish, and it's zoned C1, so I can put a family in it.

Anyone have any opinions about marketing this office as a place to live?

Most of my deals have been in 70058. With that said, I'm already seeing that we're at the tail end of this feeding frenzy. I see lots of cash buyers going through hud home store buying as owner occupant. The nice thing about that program is that you get a bunch of responsible home owners in these neighborhoods who paid all cash. As a buy hold investor, i love seeing other home owners around me buying all cash. The cost basis for the community is low, so i know the level of risk during financial stress is attenuated due to the increasing mix of low LTV homes.

most of what i call the "east bank" investors are gold rushing to bywater, st claude, and mid city. There are definitely good opportunities there, but it gets bid up to where every few deals are just breakeven. I don't think you will lose money, but buying property using 70%ARV is challenging to impossible. So, i don't waste my time hunting and go where the low hanging fruit.

the best profits right now are westbank and new Orleans east. Sometimes i feel like the deals are just too good to be true and i have to pinch myself to make sure its real. Other investors will probably chime in and tell me I'm making a big mistake buying in these areas, but that's exactly why it's working for me. They're not bidding up the prices. . . Yet.

dude, just run new electrical outside the wall and then put drywall over that!