All Forum Posts by: David Jenkins

@Robert S. @Brie Schmidt Thank you both! I have a hard time evaluating a property as if I'm buying it all cash because, well... I'm not. So it's hard to even go there and doesn't make sense. 

With my past 3 properties I've just done the simple breakdown on paper. What's my downpayment -- What's the mortgage / taxes / insurance -- What are the expenses -- Finally, subtract all that by the rental income and see what's leftover. If it's enough of a deal to make sense to me, I go for it. 

I make roughy $70K/yr in my pocket (after expenses), which isn't a ton compare to some. But I obtained it with simple math. However, I feel as if to hit my next goal (buying larger buildings) I need to have a better handle on the fundamentals. That being said -- It's a ***** to figure out! :) 

@Will Barnard @Brie Schmidt -- Just for the exercise of it... let's say I put 25% down on this property. Mortgage / taxes / insurance come out to roughly $72K/yr -- With that, this pretty much makes for a negative cap rate when factoring in the rest of the expenses, in the sense that the expenses exceed the GOI. 

Does this sound right? 

@John Leavelle I was using the 4-unit just an an exercise -- But should I only be using buildings of say 6 units and up? 

I think no matter what the size my mind still always says the same thing: What's the point of the formulas / cap rates when I can just use simple math to figure out my cash flow? 

@Brie Schmidt thanks! I did not factor in taxes & insurance. That being said, with 25% down this property would most likely hardly have any cap or cash flow. 

I think this is why the cap is so confusing to me... seems easier to just do simple math and deduct the expenses from the income to see if you'll have cash flow. 

@David Faulkner I'm keeping that one. From this point forward I'm calling it the "garage door analysis" 

I'm a realtor / investor who has a few investment properties that cash flow well. In the past I've done nothing more than a napkin analysis to figure out cash flow, which has somehow worked. 

Now I'm finally getting around to learning how to determine cap rate. Taking a first crack at it with a 4-unit building for sale near my other investment properties. Here's what I have so far: 

Asking price: $1,174,000

GOI: $77,040 annually

They provided no expenses on the listing, so I am estimating them based on two other 4-units I own in the area.

- Water & Power: $1800 annually

- Gardner: $1440 annually

- Repairs: $5000 annually

= 68,800 NOI = Cap of .05%

Does this look even remotely close? 

I take it that I do not take into consideration some of my future expenses such as mortgage, taxes and insurance to also determine the cap -- Or do I? 

Thanks!! 

@Account Closed This all makes sense, thanks! Question -- What about the potential pitfalls of bringing a building back up to market value? Meaning... cost (especially hidden costs) - time - and if you're raising rents, that the current tenants will leave for cheaper options? 

@Diane G. Thanks for this! It sounds more subjective than a science. That being said, how are brokers/sellers able to market the properties as accurate in terms of class? 

I hear a lot about "A" - "B" - "C+" - "C" ect class multifamily buildings. 

In layman's terms, what are the differences between these classes? 

Thanks! :) 

@Chris Martin are you saying 0.1 is 10%? I'm actually asking, yes.