All Forum Posts by: George Jan

@Will Barnard, 

@J Scott

Got it! Thanks much for taking the time to answer! 

@Will Barnard

@J Scott

Thanks guys. I know it's an extreme approximation and varies not only region to region and city to city, but also property to property. Nevertheless, it can be useful, up to a point, so I wanted to know whether capex is included or not since I've seen some disagreements. Even now, WIll said capex was included and J said it wasn't. And capex seems to be about 8-10% for apartment buildings and often more so for SFHs so it's a big deal whether it's in or not. 

@Frank Wolter

Great job, man! What an awesome story. It proves the American dream is still alive and well. 

I totally agree with you on the danger of debt. Yes, sure it allows someone to grow much faster while they are growing. The same is true with debt taken on by businesses or by margin debt in stock investing. But as Warren Buffett says "Having debt is like driving with a knife sticking out of your steering wheel. It's all fine until you hit a bump in the road." 

And it's quite possible the interest rates (10-year government bonds) might not behave this time as they did the last--they might keep rising even when the economy slows (up to a point). So mortgage and, especially, commercial interest rates might keep rising, too. 

Good luck!

Hi! 

@J Scott

@Will Barnard

From the property listings I've seen, expenses that go toward both the actual and pro-forma NOI calculation are vacancies, collection losses, property taxes, insurance, maintenance, legal and accounting (if any). Those are operating expenses, not the expenses that are capitalized (major capex, renting/renewal commissions etc) nor interest. That makes NOI equal to EBITDA in business. Therefore EBITDA margin would then be roughly 50% of gross revenues, too.

However, some other posts say that the 50% rule includes capex (averaged out over a long period since capex is lumpy) as well. Is that correct? How about rental/renewal commissions also amortized over time? 

If they are all included then NOI is really EBIT and only interest (and income taxes) are excluded.

I know the 50% rule is just a rule of thumb, but it is used a lot for quick deal evaluation so it's important to know what exactly goes into those expenses. 

Thanks!

George