All Forum Posts by: Elliot Vann

@Marc Weisi

I love your post and you make some great points!

However, I will have to respectfully disagree with your overarching opinion.

(Side note, my background includes some experience as an acquisition analyst for a company that owns 10,000 units across 10+ states and I personally currently manager 1,300+ units for that same company. So, I know all about IRR, CoC and various other metrics to decide if a property is a worthwhile venture.)

I think the most basic and important metric when discussing a market is cap rate. It is the quickest and straight way to see what investors appetite for risk and reward in a given area is.

You are correct that you can’t decide what deal to buy based on a “cap rate,” but it does give you an idea of what returns you should be aiming for in any given circumstance. (An area that turn key assets sell at a 7% cap, you may want value add to be able to get you to an 8% or 9% cap.)

Also, regarding how to calculate cap rates I think it fair to assume most people are somewhat in the same ballpark. Yes, if someone claims to be getting crazy high returns they likely are just including taxes and that’s it. I think most people on bigger pockets are using some variation of what they saw in Brandon Turners many videos...

Lastly, when determining what something is actually worth cap rate is the only true metric that says what it is worth to everyone. The IRR that one person may be able to get is different than another (partly due to financing and partly just how they decide to underwrite appreciation). Cap rate tells you if you paid in cash what returns would investors want NOW. In Manhattan (pre-Covid) people would be willing to take 2-3% cap rates (which means with financing a negative return) because they Project a 20% IRR with appreciation or just think it's a safe place to park money. Another market they want a 7% cap.

***At the end of the day, Cap rate is the most important metric when evaluating —a property within a specific market.***

It should not be the only metric used to decide whether to buy a deal (unless you pay all cash for turn key ;) )

Pretty straightforward question-

I’m not an economist, but I know that Jerome Powell said something extremely important today!

My little understanding is that the Fed came out with new guidance that they are going to have a higher tolerance for inflation.

I think that means they will keep rates low, it will be easier to borrow money, and therefore we will have above average inflation.

What does that mean for Real Estate?!?!

@John C Walton

The seller is providing a clear CO and the sale is contingent on the leases and proving past payment history.

So me and a partner have been looking at deals for a few months and we finally got a mortgage pre approval.

We put our first offer on a property in Easton, PA...and just like that after a counter we are good to go!

It is a duplex in the heart of the south side of Easton

Can someone please check my numbers and make sure I’m not missing something.

$125k purchase price

75% LTV

4% interest rate and 4% closing costs

Taxes is about $3,300 and insurance $800

The only other cost is water and sewer at $600-$700.

One unit rents at $800 and one at $950

The way I see it with 30% for vacancy, management, repairs, and capex it is an 8% cap which cash flows $200 a unit and has a 12% CoC.

It’s an older building and isn’t pretty but both units are occupied and in the contract we wrote that the seller has to show their proof of payments.

Besides the numbers I’m also nervous that the seller just bought it a year ago at $87k and was quick to counter our offer below his listing price.

Thoughts or comments????

Much appreciated!

@Cherif Medawar

Are you touting raising $100,000, or did you miss a zero?

@Eli Weiss

Miami condos freak me out!

The basic theory of economics is supply and demand. In Miami there doesn’t seem to be any restrictions on building so new condo buildings go up every day. If you actually visit Miami Beach area at night you’ll see that about 75% of the condos are dark because people buy them just to have but don’t live in them.

Bottom line is I think there is oversupply which means it’s not a good investment. There are too many rental options and Covid is going to crash the AirBNB market there.

If they give them out for free, I might consider taking one, but otherwise tread carefully.

Anyone disagree?

@Philip Koller

So about 27% besides taxes, insurance, and utilities.

How many deals you typically see that work to give you a 7+ cap rate at listing price and don’t require heavy lifting?

In Allentown, Easton, and Bethlehem?

Is that with taking 25% of the income for Vacancy, repairs/Capex, and management?

@Christian Beyer

Is there any possibility to refinance and get some money back out?

@Luis R.

I don’t know how many units you have, but sometimes local realtors are a good option to manage a few units, assuming they also do Management