All Forum Posts by: Mark Rauch

When calculating the cash on cash return of a commercial property do you include the debt service in the operating expenses? Asking for the property is $18 million. I'm the agent. Just want to do a quick analysis before I get the actual expenses. All leases are NNN so most expenses are passed to the tenants. Gross annual income is $900K. I plugged in a 5% Vacancy. $100K for miscellaneous expenses. Using 4.75% for the loan with 30% down and I'm getting a 0.92% cash on cash return. Does that seem right? That's an awful cash on cash return. Similar properties in my area are selling for a 4.5 to 5.0 cap rate. So by that gauge $18m falls in line. Would the c on c be that low with a 4.5% cap rate? Could one assume the ROI would not look good either? I'm not an investment broker (yet) so I'm a bit confused. Am I missing something? Thanks.

If one were to use the CAP RATE method for calculating the value of a commercial property, if all the leases are triple net rather than gross, would you simply divide the gross operating income by the CAP RATE? Am I right in assuming there would be no Net Operating Income (NOI) since the tenants are being charged back the operating expenses? Including taxes, insurance, maintenance and management. Would I still add in a 5% vacancy factor?

If one were to invest out of state, what would be the proper way to oversee improvements and management. In other words what should your infrastructure look like and how can you protect against property managers, contractors, handymen and tenants from taking advantage of the fact that you are not local? Have heard horror stories but it seems that the deals to look at currently are not in Los Angeles where I live. Looking to purchase a multi family in the 2.5 million zone. Worried a management company and unscrupulous people will kill my cash flow. Would a triple net property be better? Thanks, Mark

Does anyone have experience buying small retail buildings perhaps 3 to 5 units that redeveloped into medical units? Would love to hear how it is going and get an idea of the basic improvements made to each unit and how long it took to lease the property up. Have an interest in learning the step by step process from purchasing the property through developing the property through leasing up the property including how to analyze the deal. Thanks!! Mark

Kathy, I am in Los Angeles and thinking about going out of state.  Some of the members here have suggested 'Turnkey" companies.  Not sure that is the route I am looking for but open to it.  One person mentioned how they can be a nightmare.   I am concerned about being taken advantage of by PM companies which I have heard is a definite issue.  How did you find a PM company and Investment Broker you trust?  Has it worked out positively?  Obviously you have to trust that the person working for you has the utmost of integrity and ethics.  The last thing I would want is to be told the building needs all kinds of "phantom" required plumbing, A/C or electrical work only for them to pocket the money.

Jerry, Rhea, Curt and Richard,

Thank you so much for your input.  I had no idea about the "turnkey" concept.

Will definitely look into it.  I would definitely fly out regularly to the areas I end up investing in.  Richard, great points!  It would be critically important to hook up with a company that will be totally honest with in terms of sales comps.  That would be a nightmare to not be able to have an exit strategy should you want to trade up.  If there are opportunities to purchase for under $5,000.00, I would expect the company I align with would disclose this.

Amazing to me those opportunities exist.  Are these abandoned, ghost town areas of Detroit?  Who rents these homes? Is there appreciation?

Personally I am leaning towards apartments and not single family.

Thanks again!!

If one were to invest out of state, what would be the proper way to oversee improvements and management. In other words what should your infrastructure look like and how can you protect against property managers, contractors, handymen and tenants from taking advantage of the fact that you are not local? Have heard horror stories but it seems that the deals to look at currently are not in Los Angeles where I live. Thanks, Mark