All Forum Posts by: Account Closed

It depends on your particular investment philosophy, exit strategy and goals. 

The average price increase in Los Angeles is about 5.8% per year and average prices for an investment is in the $546,000 range. Average rent about $2278 per month. If you discount 50% expenses, there is almost no room for error. Cap rate is quite low and an IRR in the 8% range is a nail biter.

An institutional investor may be unconcerned in regards to having to cover 'uncovered expenses' on multiple rental property mortgages in the area for multiple years. That doesn't necessarily mean this is practical or feasible for every investor.

It is also risky to bank solely on the rental property appreciating in value during the investment horizon -- that is not always the case. Some investors do not look at an investment that doesn't cash flow. Some do.

 Sounds like a flimsy excuse by the listing agent. 

The appraised value = market value. Typically some sort of MLS based comps would be a source. Buying at 80% of the market value (if you can find a seller) would mean some 20% equity; so there would be some value or arbitrage of sorts in trying to buy a rental investment below market value with the intent of getting market rate rent for it.

Investors often may want a quick way to get an idea of how an investment compares to an alternative. The cap rate is a tool that can be used for any of such evaluations.

If a certain rental has a 5% cap rate for instance, the implied payback period on that investment is 20 years. A cap rate of 10% however would have a payback period of 10 years. 

So an investor whose exit strategy and investment goals require faster payback periods, would tend to use the cap rate to determine where an investment ranks on the payback period scale.

When you understand the variables that are utilized to derive the cap rate, you may find yourself using the cap rate to look at an investment in different ways.

If you are trying to measure how the investment has performed during the last 15 years, you may want to use the internal rate of return (IRR).

To get the current cap rate of the investment you would use the market value of the investment today (what an investor would pay for it) and whatever the net income is to compute that. 

Regarding there not being a mortgage on the unit, that wouldn't affect the cap rate.

 You would need some very specific information to the area in question but it would only be accurate if the assumptions are.

 Each bank varies in terms of how they go about structuring any loan.

Maybe they were trying to steer you into something costlier? $14,000 at closing on a mortgage in that range does seem unusual... is she able to items what exactly the $14,000 is for? 

Banks are in the business of lending money for a fee (your interest rate on the loan), they likely won't be ecstatic if your mortgage is $126 if it could have been $350.

Each bank may have slightly different products, rates and terms. It always help to see what banks in the area are doing.

 You want to know who exactly is foreclosing and the whereabouts of whoever happens to be on the deed.

 You get better cash flow with a 30 year mortgage.