All Forum Posts by: Vlad Denisov

Because of this delta, NOI increases every year and Cap Rate as a result. But NOI can't grow infinitely over time, right? What are the reasons this process stop and when should we expect it to stop?

A few thoughts:

Your NOI doesn't grow simply because of the difference between 3% for GOI and 2% of OpEx. Those growth rates can be equal and your NOI will grow at that same growth rate.
If you are going to assume there's a difference between your income growth rate and your expense growth rate, you need to be able to justify that difference. Why will your rents grow faster than inflation (your expense growth rate should be tied to inflation)? Go back 30 years and see if your submarket has actually had 3% average rent growth over that period. If not, what's changed that will allow you to underwrite that for the next 10 years? Is your area rapidly growing?
Yes, NOI can grow infinitely over time, since it's tied to inflation (ceteris paribus).

Sam,

1. The growth can be equal, because expenses almost always are less than 50% of GOI, right?

2. I think, I did a calculation on last 30 years of house price index and that's what I got. Is it silly to apply it to this scenario? I also saw different syndicators underwrite deals using 3% in rents growth for Phoenix.

3. Is the inflation on price of apartments buildings, let's say, in Phoenix much lower than the CPI? Is it super-low?

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I am just starting out, so I don't see the whole picture of multifamily business. How many people there really know what they are doing? I think, I can get at least some kind of picture by asking on BP, because right now I have no clue. Let's say we have 5 groups of syndicators based on their competency.

Very bad

Bad

Average

Good

Very good

1. The sum is 100%, what percentage would you give to every group?

2. What is a relationship between average investor's competency now and 5,10,20 years ago?

3. Is there a difference in competence of the investors who are selling now and those who are buying. Is there an answer to who is more sophisticated?

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@John Mann

Good point, I meant cash flow.

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@Nick B.

Did you find what you were looking for?

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Also, when we underwrite a 10 yrs hold we believe that we have this constant delta supporting increase in our cap rate for this period. We project it this way, because we believe in the assumption that multi family in our market is gonna be in demand as it is now? If the answer is yes, then in how many years do you think cap rates will freeze even though our Delta will stay the same?

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@Ben Leybovich

Russians are everywhere :)

So, investors won't be willing to pay 12% cap for the same property that has 5% at the moment. But inflation is still there. Does it mean that we won't be able to keep raising rents 3% annually over the course of 30 years? Or we will be doing it but the value of our property will decrease based on demand for it? Put another words we will have the same % Delta of opening our NOI but buyers just won't buy this cash flow for the same multiple, thus holding back cap rate from going over the roof?

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@Greg Scully

For utilities - yes.

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Originally posted by @Nick B.:

In reality, NOI growth will never be linear. It may go up 10% one year, drop 6% another, and so on.

Proforma paints you a nice, smooth picture that never reflects reality.

3% assumption is in line with inflation, so your rent will grow as long as there is inflation and (very important) that inflation translates into wage growth for your tenants.

Nick, thank you for your input.

Let's say NOI fluctuates over the years but on average it is still about 3% for our market. If we think that inflation will always be there the does it mean that in 20-30 years Cap Rates will grow and reach crazy numbers? What does stop it from happening?

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@Emad Nasser

Try to get a quote on what loan you can get for this property, so you can factor your debt service into the calculation and see what your cap rate is.

Taxes are subject to change. Usually they increase over time. You can get a quote on how much the taxes are gonna be in the future, so you can calculate your expenses more precise.

I’m also just learning and haven’t done any deals yet, but these steps seem reasonable to me. Hope this helps :)

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Originally posted by @Emad Nasser:

Good deal or bad deal ?! What should i offer ??

Help please

Asking price: 825K

13 units multi family apartments

12 units : 2bed/1bath rent for 750$ a month

1 unit : efficiency room rent for 400$ a month

Washer/dryer room earns about 400$ a month

Apartments in Good shape.

Has window units, no central air.

Parking for 8 cars. Tenants also use the McDonald's parking lot next door.

Water paid by the landlord.

The building has flood insurance too.

100% occupancy.

Tax for 2018 $ 3241.00

Expenses run about $46,000 per year.

Hi Emad,

Imo, you need to give more info in order for BP members to be able to help you. Some of that info would be: the market you consider buying it; future tax; what financing options are available to you, etc

2 Votes

All Forum Posts by: Vlad Denisov

Vlad Denisov has started 21 posts and replied 57 times.

Post: Delta between future income and expenses

Post: Competence amongst investors

Post: I need help with analyzing this multi family please

Post: Historical cap rates for apartments

Post: Delta between future income and expenses

Post: Delta between future income and expenses

Post: Utility Income&Miscellaneous Income

Post: Delta between future income and expenses

Post: I need help with analyzing this multi family please

Post: I need help with analyzing this multi family please