All Forum Posts by: Account Closed

Thanks everyone for your input, it is much appreciated.

Ok, so back to the original question, what would you do?

I never said that. I'm saying my cap rate increases as my NOI increases. Is that true or false?

Bob what you said doesn't change the fact that I bought the property for 1m, increased the NOI, and there by increased the cap rate.

Brent what should I buy, or what would you recommend? That's very true, being out an extra 31k doesn't make sense unless it reduces my cost of living, which it doesnt. Thanks, for the input. 

Saj, it's not battling it's just looking at it and knowing what he is saying isn't correct. He mentions the cap rate is not affected by NOI. Well we all know it is. If I buy a property and increase the NOI my cap rate has increased. Like Bob said that's just the facts. Yes that is a very simplistic approach but when you start arguing as he did its too subjective to say I'm right your wrong, he didn't even ask where I got the 5% vacancy and 10k in expenses from. So the actuals actually give a higher cap rate. Those two numbers combined are currently more than the last year's expenses, but I felt it wouldn't be doing myself the justice with using the actuals as what I've experienced with my other properties wasn't what the actual size were.

@Radhika M.

Thanks for the response Radhika, I didn't use $3,500. But I got that number from a 3bd in one of my other investments. It's a little different location, for the better, so I reduced it and my numbers use $3,250. I do agree even $3,250 may be a little high, especially since so many apartments are coming to market. The main idea I wanted to get input on was the financing, would it make sense with the terms and low down payment to purchase it. I am already leaning away from it as for the exact reason you mentioned of things slowing down. But will I get a chance at a 3% rate again?

@Account Closed

A cap rate is exactly that a rate of return on real estate, albeit you purchased the property cash. True its tough to find exact cap rates out but you can get a general idea. And to your first post NOI directly affects the cap rate. A cap rate = NOI/property value, thereby making the cap rate completely dependent on those two items. If you have a property that gives you NOI of $100,000 and you purchased it for $1M you have a 10% cap rate which is the rate of return. If there is a property listed for $1.5M with a NOI of $65k then the cap rate is 4.3% not 7%. Now if you want a cap rate of 7% then you should offer $928k. I feel like you're trying to argue rather than give helpful info. Please don't respond unless you have something constructive, it doesn't benefit anyone the way you have responded.

Hi Bob thanks for the reply. I think cap rates can be used on anything, all a cap rate does is provide a rate of return. 

Maybe I am using the wrong formula to calculate the cap rate, what is the formula you would suggest I use? 

The market rents are higher thats just what it is. Current rents are section 8, and those rental rates are what they are. If you go to the non section 8 market the market rates are higher. That's just what the numbers are for those unit types. 

Would you buy it with those numbers?

Your CoCR is at 15.89%, by my calculation, if you take into account debt service. Your DCR is about 1.6, which is good, and your cap rate is roughly 9.8%. Not bad numbers, question is can the 16k give you a better return in another property, maybe a duplex or triplex.

A clean offer goes a long way. We just had an offer in the bay area that was close to if not lower than others because it was cash, 10 day close, 5 day inspection, we also took all closing and title costs. For where we are they usually are the sellers responsibility or split. The agent had a friend that made the same if not higher offer but theirs was 30 day close and they were asking questions like is the title clean, any issues with title, etc. From those questions the agent knew he was going to have to walk the buyers through the entire process. Mind you my partner and I are by no means big time players but we held ourselves professionally, did our due diligence and assured the agent that this was going to close quick on our end. We didn't hire a professional to write our offer we just made it the way we would want it if we were selling. 

Put yourself in the sellers shoes look at your offer and think, how easy is this offer going to be for me. At the end of the day make the offer with your numbers, not emotion, and if it gets accepted right on. If not move on to the next one. I've made well over 100 offers and have had 7 accepted. The more people that say no, the closer you are to a yes. 

p.s. If you want a deal in Concord, CA shoot me a message.

Hello everyone, 

I would love your opinion on what you would do if you were in my situation. So the quick breakdown is I live in the SF Bay Area, I have a lead on a fourplex, where the owner want 1.5mm (I'm set at 1.45mm and think that will work), in San Jose, CA. I have the ability to get a loan at 3% with 100k down, living in one unit. The unit sizes are (1) 3 bd 2 ba and (3) 2 bd 1.5 ba units. All units are on Section 8, with rents at (1) $2,800 and (3) $1,980 respectively. Market rents could fetch (1) $3,500 and (3) $2,250. Recent fourplex, same layout, went pending with a list price of $1,599,000, with the contingent/pending days its been on the market for a 3 months.

Here are the numbers with my family living in the 3bd unit, a 5% vacany rate and $10k in expenses. 

Cap rate - 4.03% (about average for the Bay Area maybe a little low)

DCR - .65

Cash Flow - ($31,000)

Here are the numbers fully rented with rents at 3bd $3,250 and 2bd's $2,150.

Cap rate - 6.94% (over 7% is tough to find in the Bay Area)

DCR - 1.12

Cash Flow - $10,500

Please let me know your thoughts or questions. Much appreciated.