All Forum Posts by: Peyton LaBarbera

Quote from @Jake Andronico:

Quote from @Peyton LaBarbera:

So this confused me a bit... I saw a listing for a 15-unit apartment building that is for sale and the property has a 5.3 cap rate, this isn't the issue.

The issue is in the listing description the agent said the building could have rent growth potential based on the rising rent prices in the area which she said would bring the property to a 6.6 cap

Now my question is why would I buy a property for 2.5 million when with this new expected cap rate the property would tank to just under 2 million

NOI is roughly 132,000 and most units are in pretty good shape

Another note is the average cap rate in the area the property is located in is a 6.4 cap

Cap rate = NOI/Purchase Price

132,000/2,500,000 = 5.3% 

165,000/2,500,000 = 6.6% 

The agent is saying that if you bump the NOI up to 165,000, if you bought at 2.5mil it would be a 6.6 cap :) 

Hope this helps! 

Ohhhh I get it now,

I was thinking in terms of the current NOI which is 132,000 and with the new 6.6 cap rate she was talking about this made me think the property was going to only be worth 2mil

What your saying is to forget about the old 132,000 annual NOI and now with the increase in rent this would bring my new NOI to 165,000 and with the 2.5mil PP which wouldn't change that would bring it to a 6.6 cap... so the property isn't worth less when I buy it I just get more cash flow since the opportunity to increase the rents is there.

Still you can correct me if I am wrong but I think I got it now

So correct me if I am wrong but doesn't an increase in rents decrease the cap rate since the property is more stable with a wider spread between gross income and the operating expenses

Quote from @Russell Brazil:

Quote from @Peyton LaBarbera:

But why wouldn't an increase in the cap rate decrease the property's value?

Or are they just saying that because of rent increases then the property would act like a 6.6 cap?

I'm still I bit confused if you can't tell

They're saying the NOI is increasing, not the property value decreasing.

 That makes sense, thank you @Russell Brazil

But why wouldn't an increase in the cap rate decrease the property's value?

Or are they just saying that because of rent increases then the property would act like a 6.6 cap?

I'm still I bit confused if you can't tell

So this confused me a bit... I saw a listing for a 15-unit apartment building that is for sale and the property has a 5.3 cap rate, this isn't the issue.

The issue is in the listing description the agent said the building could have rent growth potential based on the rising rent prices in the area which she said would bring the property to a 6.6 cap

Now my question is why would I buy a property for 2.5 million when with this new expected cap rate the property would tank to just under 2 million

NOI is roughly 132,000 and most units are in pretty good shape

Another note is the average cap rate in the area the property is located in is a 6.4 cap

Quote from @Russell Brazil:

Class A Locations Low Cap Rate

Class D locations High Cap Rate

Cap rate is a reflection of the risk in the asset and market. The higher the risk, the higher the cap rate. The lower the risk, the lower the cap rate. 

 What about Class B and C locations?

Quote from @David M.:

@Peyton LaBarbera

That kinda goes back to studying your market --- chicken and the egg?

As mentioned, you need to figure out how property taxes are handled.  With that info, thats very easy to calculate.

Insurance will pretty need to get your insurance carrier to provide you with some quotes.

Aside from your mortgage, that handles your PITI.

Everything else is part of the rest of your due diligence.  I think its a bit of both art and science, as well as availability.  If a property is a little more run down, it probably will need some expenditures up front.  Even with a property that seems "fine," stuff breaks down.  Maybe that 2yr washing machines decides to die --- they really don't make them like they used ...  Maybe same with the hvac...

Is that what you were asking?  Good luck

Yep, that about sums up the answer to my question, thank you.

Quote from @Michael Smythe:

@Peyton LaBarbera you're not going to find or get a lot of info on SFR properties.

For apartment buildings, owner's agent will typically provide a glossed up Pro Forma. In your offer you can specify that you want access to bank records and tax returns to see and validate income/expenses.

The challenge with whatever info you get, besides validating you aren't being conned, is what will your numbers be? Hopefully, you can run the property better and reduce expense and increase income. 

 Yes, my goal is to invest in apartment buildings so that is good information to know about

Quote from @Account Closed:

Quote from @Peyton LaBarbera:

@Account Closed Would you say that would negatively or positively affect a property's value?

I guess that depends on whether you like the smell of being down wind from a garbage dump.

Ha! I just wasn't sure based on your wording you hadn't made it clear if those were bad or good examples since being by a train track could mean close to transit/train station and that could be a good thing, just was confusing that's all.

Thank you

@Account Closed Would you say that would negatively or positively affect a property's value?