All Forum Posts by: Account Closed

1. You have no idea how a cap rate is used.

2. A cap rate is generally not used until you get to at least 10 units, varies to some degree by market.

3. There is no cap rate on this property until you buy at the guesstimated STUNNING 12.5% and then you may well find out the market cap rate WAS 18.5% and you'll have every other investor laughing their asses off until they realize this will encourage other sellers to hold out until your twin comes along.

4. A GRM would be more appropriate and much easier to use. Gross Rent Multiplier. Your gross rents are $23,400 divided into your purchase price of $127,500 is a GRM of 5.4. You should ONLY compare that to similar properties in similar NBHS's. A GRM of 10 is a generic Midwest number where in SF/Hawaii it can be in the teens, twenties and up. It is much easier to find correct information on rents and you can find sales prices so as long as you are comparing similar properties it is harder for someone to pull the wool over your eyes.

Brandon, an investor should know that all markets are local. If you invest in a 50% rule market then the 50% rule applies. If you invest in a 70% rule market then the 70% rule applies. Rather than being concerned if another markets rule is applicable in your market it is better to understand WHY your market rule is different.

Are you kidding? Prop 13 is about the best thing ever for a real estate investor. Well, except for the double digit appreciation and the LOW vacancy and the fantastic rent growth! I don't read stories of renters camping out to be first in line for an apartment with their rental resume and their heart felt essay to the owner telling them how they will cherish the property from cities in Indiana or say Arizona. I also have never heard of equity immigrants coming from any other state than CA snatching up properties for cash with the hundreds of thousands of equity gains in CA.

Fixed rate mortgage, assessed value for taxes capped at 2 o/o annual increases. I know several investors with up to $10,000,000 in properties paying taxes on less than $1,000,000.

What's not to like?

I'm pretty sure the allocation process has not changed since Prop 13 was passed in 1978. There is a provision in the R&T Code that says the allocation is NOT to be used for depreciation purposes.

It could very well be by accident that the allocation is close on accident or by an appraiser that is very meticulous and had current knowledge on land values in the area but that is unlikely as usually there is a 30/70, 20/80, 50/50 allocation default in each assessors office. There is an investor that posts here that thinks his $700,000 property has a land value of $500,000 and that that is typical of CA.

Call any of the 58 assessor offices in CA and they should ALL tell you about the allocation of land and imp. values or just check out the R&T Code.

The important thing for the OP here is to KNOW the assessing laws for where they invest and the best place to find that is with their assessor or tax collector.

In CA the land and improvement value is merely an allocation of total value at the time of assessment. It is NOT a number to be used for depreciation purposes. I believe there are people here that are over paying taxes because they do not know this. If you own property in CA that you are depreciating you should check what value you are using.

Check with your local taxing authority. Generally assessed values have little to do with market value. In CA your purchase price generally sets your base assessed value that can't be increased by more than 2 0/0 a year. You can have properties valued at tens of millions that are assessed under $100, 000 and that is what they pay taxes on. You can also have a property assessed at $800, 000 with a market value of $600, 000.

Don't confused assessed value with appraised value.

Well, you made me Google...Q From Peter J Lusby: A question arose recently during a discussion here in California about the origin of the expression argy-bargy (also written argey-bargey), meaning a relatively amicable, if somewhat heated, argument.

I hope I haven't scared you off or seem confrontational. I am truly interested in the investor psychology and feel there is much to be learned from a true exchange of ideas. Your investing seems very fear based. I'm trying to show you that your fears MAY be leading you into wrong investing decisions. Now I have friends that won't invest at all because of fear. When I bought in the 70's and my value more than doubled in two years I was told I was lucky to buy then. Then when I bought in the 80's and my value doubled in two years I again was told I was lucky. Same in the 90's and 2000's. I still like my friends and appreciate that their inaction is based on fear and they recognize it.

I am amazed at how some investors like yourself think there is no future. I deal with professional investors that invest in $100,000,000 + office buildings. While they do look at todays numbers and the current cap rates to determine what the other market investors are buying at they are very much looking at the "upside"! Say a property has a lot of above market leases that will expire in a few years. They would have to make a "prediction" (business decision) on where they think the market rents will be when they expire. Professional investors will look out to the FUTURE to determine when large blocks of space will be coming up and make "predictions" on where they think market rents will be at that time. They look at historic business cycles, election cycles, the FUTURE, etc. They do not make a buy decision on a cap rate except to ensure they are not paying over market at that time.

So yeah, I'm interested why smaller investors do not act like professional investors. I'm interested on why some smaller investors say they look at the "numbers" but don't understand the numbers or completely ignore them.

Everyone has to act on their own comfort level. I've passed on great deals just because I could be caught overleveraged if things took the 5% chance of not working out on my time line. I recognize that I am conservative when it comes to my use of leverage.

Anyway good luck with however you invest and I hope you don't always shy away from argy bargy. Real estate investing is not for sissies. LOL

I could have sold you a Blockbuster franchise 5 years ago based on the numbers. Where would you be today? Successful investors don't make wild predictions. If I have a stable 40 year+ appreciation rate of 10% how am I not doing the CURRENT numbers in my decision when you are only looking at TODAYS numbers and "predicting" they will stay about the same and yet you are the one that is ignoring historic NUMBERS such as rent growth and appreciation?

AND again it is the cash flow over the holding period. Seems the cash flow now demanders keep ignoring the TOTAL cash flow.

I just plain disagree. I will choose huge guaranteed appreciation over potential small cash flow every time.

I know too many people that saw their cash flow get eaten up in big capital expenses, lost rents and legal troubles.

No, you're still confusing two different concepts, 1. rent growth and 2. appreciation. There is generally a relationship between the two but they will have completely different rates and cycles. You seem to advocate buying based on cash flow at ONE point in time. You are counting on no rent decreases, value decreases or vacancy increases or increasing operating expenses . What are you basing that optimistic prediction on if you are unaware of historic rent growth or appreciation rate, one days picture of a "cash flow"? I guess I'm just saying the snapshot game does not predict the profitability over your holding time very well. Buying a "higher crap rate" or instant cash flow does not mean you are buying wise. Nothing wrong with trying to get immediate cash flow but you are a fool if you don't have a good idea which way it is going.