All Forum Posts by: Michael L.

Commercial is different than SFH or MFH. It is more purpose driven since there are fewer customers. Also the timeline to a sale or rental is far longer than for a residential unit. You will make far more money when you bring a Purpose to the property.

Plus you need to be specific on the purpose.   Example.   Medical complex.  Contractor Flex buildings.  Bowling alley converted to ????.  Etc.    Just buying a commercial building and cleaning up Haltom sale has a lot of risk.  

I'm not a rookie but I'll comment what I think is holding most rookies back based on convos I have at meetups and what I see around the forums:

1. They don't have the money for a down payment. And "creative finance" deals are much easier said than done.

2. They can't make the numbers work with high interest rates (unless they put a ton of money down, which brings us back to issue #1)

hey @Michael L. in short the answer to your question is "kinda".  A "caprate" in and of itself is deal specific, not market specific.  But what tends to happen, as you are eluding to, is that the "cap rate" that an asset or a building sells for in a certain area, in a certain condition, will begin to tell you a trend of what the "market cap rate" is.  To your point it is used as a way to compare dis-similar properties across a market.  

The age of a building in my mind indirectly impacts the caprate.  In that a buyer is willing to pay less for a building the older or more in disrepair it is. So yes if a building is older, it will tend to trade for a higher caprate (lower price) than its comparable younger properties.  If you get a chance to see Ashley Wilson from Bar Down investments speak about the "caprate Con" ever, take the chance its a fantastic presentation she has put together on how the caprate really is not all its made out to be in a deal.

@Michael L.

Cap rate is a guide. It shows NOI divided by investment

But say two buildings both with 5% cap rates - one is 50 years old and has not had work to it and needs roof, windows and doors

The other is a building 6 years old.

Will they sell the same price ? No. The first has significant cap ex costs which need to be taken into consideration

There it is. Often interpreted as haterade, one of my pet peeves is the profits some wholesalers try to make. Here's why. Spoken in terms of average and median values, in most circumstances "the market", any market will only support so much sales price. With the difference between a property's sales price and the amount of its encumbrances being equity, eyebrows start to raise with so much as the appearance of skimming and/or other shenanigans, which the 2008 fallout brought us in the form of foreclosure prevention acts protecting homeowners against...operators with less integrity than others. :)

Regularly seeing wholesalers ask close to if not retail values for property, and/or other shenanigans, like advertising sub-to terms, a violation of the due-on-sale clause seen in most if not all mortgages, even the sale of property, considered licensee activity, when all they have is equitable interest in said property, at best. Now beginning to see municipalities regulate as in, requiring wholesalers to get licensed, I can't help but wonder what lines were crossed, who lost their life savings for that to happen.

Think of real estate as an eco-cycle. Everyone eats when everyone acts right. As a wholesaler, you'll need a network of flippers and buy-and-hold investors along with a, not so much "investor friendly" but, an investment-knowledgeable real estate broker/agent on your team. A rockstar who will be happy to provide sales and rental comps, a CMA, when the best you'll get from Propstream is an automated valuation (heck, I'll even provide census data!) in exchange for: the first dibs at buying if inclined or circulating a deal to their buyer/investor base before you even have to market it, or a listing appointment with those that fall out, especially because the seller needs more than your MAO allows and, you won't see this often because investors feel they have to play the field but, marry them! Yes, marry as in, sign an agency agreement because who do you think we call when we can't so much as walk the property to determine its value or put a sign in the yard because the Seller doesn't want or can't have showings!

Now, this may very well reduce $50,000 home runs to five $10k base hits but, like Michael said, operate with integrity and honor, lead in a spirit of service and reciprocity, and the rest will follow.

There it is. Often interpreted as haterade, one of my pet peeves is the profits some wholesalers try to make. Here's why. Spoken in terms of average and median values, in most circumstances "the market", any market will only support so much sales price. With the difference between a property's sales price and the amount of its encumbrances being equity, eyebrows start to raise with so much as the appearance of skimming and/or other shenanigans, which the 2008 fallout brought us in the form of foreclosure prevention acts protecting homeowners against...operators with less integrity than others. :)

Regularly seeing wholesalers ask close to if not retail values for property, and/or other shenanigans, like advertising sub-to terms, a violation of the due-on-sale clause seen in most if not all mortgages, even the sale of property, considered licensee activity, when all they have is equitable interest in said property, at best. Now beginning to see municipalities regulate as in, requiring wholesalers to get licensed, I can't help but wonder what lines were crossed, who lost their life savings for that to happen.

Think of real estate as an eco-cycle. Everyone eats when everyone acts right. As a wholesaler, you'll need a network of flippers and buy-and-hold investors along with a, not so much "investor friendly" but, an investment-knowledgeable real estate broker/agent on your team. A rockstar who will be happy to provide sales and rental comps, a CMA, when the best you'll get from Propstream is an automated valuation (heck, I'll even provide census data!) in exchange for: the first dibs at buying if inclined or circulating a deal to their buyer/investor base before you even have to market it, or a listing appointment with those that fall out, especially because the seller needs more than your MAO allows and, you won't see this often because investors feel they have to play the field but, marry them! Yes, marry as in, sign an agency agreement because who do you think we call when we can't so much as walk the property to determine its value or put a sign in the yard because the Seller doesn't want or can't have showings!

Now, this may very well reduce $50,000 home runs to five $10k base hits but, like Michael said, operate with integrity and honor, lead in a spirit of service and reciprocity, and the rest will follow.