All Forum Posts by: Justin Goodin

Quote from @Melanie P.:

Quote from @Chris Seveney:

Quote from @Justin Goodin:

Commercial real estate lenders calculate interest on loans in three ways:

✔️ 30/360
✔️ Actual/365 (aka 365/365)
✔️ Actual/360 (aka 365/360)

Real estate underwriters should be aware of these 3 methods and understand which calculation the lender is using.

The differences can have a significant impact on the amount of interest paid over the life of the loan.

Similarly, it can also have an impact on the amount of cash flow that is available to be distributed to your investors.

In the example provided, which appears to come from this site, it would equate to a $340 difference on a $1M loan over 10 years or $339/year. While its still money, it is .05% which points/fees/closing costs can typically have greater fluctuations.

30/360, Actual/365, and Actual/360 - How Lenders Calculate Interest on CRE Loans – Some Important Insights - Adventures in CRE

 You wanna regurgitate some useless crap you read on the web do it in your toilet, pal. Don't come here to do it.

Take some of the information you READ here, go knock on some doors.

 Thanks for another insightful comment!

What is Considered a Good Multifamily Cap Rate?

The short answer is it depends!

There’s no universal standard since it relies on two main variables–your investing objectives and current market conditions.

Some key factors influencing a good cap rate include:

/ Property location
/ Building condition
/ Asset type (class A, B, C)
/ Overall real estate market dynamics

Taking these into account helps set realistic cap rate expectations, but historically, rates between 4-10% are often seen as solid.

Of course, a “good” cap rate for you might fall outside that range based on your investing goals and the specific property/market, so don’t get hung up on chasing a specific cap rate number.

What is a good cap rate for your market?

When eyeing multifamily investments, you'll likely encounter two key metrics – cap rates and gross rent multipliers (GRM).

At first glance, they seem similar, but there are some important differences between the two.

The GRM simply divides the purchase price by the property’s total potential rental income–it doesn’t account for operating expenses.

Cap rates, on the other hand, factor in both income AND expenses to give a more complete profitability picture.

The main advantage of cap rates is their ability to evaluate better and compare investment returns, risks, and value. For this reason, they tend to be a more reliable tool for real estate investors.

Commercial real estate lenders calculate interest on loans in three ways:

✔️ 30/360
✔️ Actual/365 (aka 365/365)
✔️ Actual/360 (aka 365/360)

Real estate underwriters should be aware of these 3 methods and understand which calculation the lender is using.

The differences can have a significant impact on the amount of interest paid over the life of the loan.

Similarly, it can also have an impact on the amount of cash flow that is available to be distributed to your investors.

This is the manual input in your underwriting model that reflects the percentage increase your rents will grow each year.

Unusually high organic rent growth inputs can be dangerous because it has a compounding effect.

Organic rent growth has a compounding effect in your underwriting model. Meaning, every year builds off of the previous year.

A reasonable organic rent growth input can be from 2% to 4% every year, but this depends on your business plan and market.

Sponsors can use organic rent growth to inflate investor returns in the underwriting model. 

What are you using for organic rent growth assumptions moving forward?

📈How do you calculate Breakeven Occupancy?

Expressed as a %, B.O. shows how much physical vacancy the property can handle to break even, in a worst case scenario.

So if the property went down to X% occupancy, the sponsor can still pay all of the expenses and pay the mortgage.

The formula:
(OpEx + Debt + Fees) / Collected Income

Most investors would agree anything between 60% and 80% is acceptable.

Are you calculating B.O. in your underwriting model?

 I hope everything works out for you buddy!

 These questions are not about 'getting started in real estate.' They are worthwhile questions to ask a sponsor before passively investing in a syndication. I hope that helps clarify.