All Forum Posts by: Immanuel Sibero

@Miles Stanley

Miles,

I agree completely about striving to understand the underlying concepts... that's the way I am... probably why I never use BP calculators in the first place... lol. Needless to say, I don't know what all BP calculators do so I can't comment on them. I may take a look at them when I have time. But check out the following BP post:

https://www.biggerpockets.com/forums/48/topics/877...

Speaking of underlying concepts, the reasoning for excluding CapEx from NOI is because CapEx items are generally infrequent in nature, not in the ordinary "operation" of the properties. I guess we can roughly say that NOI (Net "Operating" Income) is just that; a group of items necessary for the day to day "operation" of the properties. Roof replacement is not an "operating" item in a sense that it can be deferred for sometime.

Immanuel

@Miles Stanley

Hi Miles,

NOI excludes a few things...

http://www.investopedia.com/terms/n/noi.asp

Best,

Immanuel

@Miles Stanley

In this forum, you will find that the experienced investors prescribe the use of sales comparables in valuing SFR, 2 to 4 plexes. Anything above 4 plexes are normally valued using cap rate comparables. Absent sales and cap rates comparables, I would suggest GRM (i.e. Gross Rent Multiples) comparables. The challenge to using GRM comparables are obviously the type of propertyies you're comparing. You would want to compare the GRM of a fourplex with other fourplexes. You could compare the GRM of a fourplex with a duplex or an SFR but I would think you would want to adjust for it.

@Tony R. Yagiela

- NOI (Net Operating Income) does not include capital expenditures (i.e. big ticket items).

- Dividing NOI by the Value/Purchase Price gives you cap rate, it's not necessary to multiply by 100.

- The cap rate is determined by the market, it varies by localities. Investors would need to find the cap rate by talking to brokers, local experienced investors, and other sources, as opposed to calculating their own cap rates.

Immanuel

@David Faulkner

Well said, David. I did learn a lot from Bob.

Immanuel

@Rich Lopes

The market determines cap rate. There are 3 variables in the formula - Value, NOI, CAP Rate.

An investor:

- can control NOI directly (i.e. improvements, value adds, etc)

- can control Value indirectly by controlling NOI

- can NOT control cap rate (i.e. because the market determines Cap Rate)

Therefore, any scenario that implies an investor controlling Cap Rate is incorrect. For example

- If you increase NOI and Asset Value remains the same, would cap rate go up? Well, everything else being equal, when you increase NOI, Asset Value would go up (i.e. this is the classic value add play). If you find yourself in a situation where Asset Value remains the same after you have increased NOI, then your market conditions have changed (i.e. the area might have become less desirable). And yes, this is a scenario where Cap Rate has increased, but notice that YOU did not cause the cap rate to increase, the market did.

Immanuel

@Calvin Clark

I would carefully check out the area... Parts of south Dallas-Fair Park can be challenge...

This is not the same property as the one below, is it?

https://www.biggerpockets.com/forums/432/topics/79...

All the best... Immanuel

@Richard Stephens

You've had some excellent points from other posts. NOI seems low so definitely need to investigate expenses. Is it possible to get Income Statement or Profit and Loss Statement?

Also, cap rate is calculated using NOI therefore does not take into account capital expenditures such as new HVAC, new roof replacements. I would try to get the market cap rate for the are from brokers. If you were to look at listing prices of multi family apartments for sale in the DFW area, the cap rate ranges from 6% to 10%. It is a wide range but it goes to show you that 3% is out of range in DFW.

All the best... Immanuel

How is the 10 cap rate calculated?

Thanks,

Immanuel

Using the 50% rule is like trying to find a family with 2.35 children. It's the average number of children per family in the US but you'd be hard-pressed to find that family.

So... what I'm getting out of this discussion is... just like value/beauty, cap rate is in the eyes of the beerholder...  do I get it right? Haha.