All Forum Posts by: Todd Pultz

@John Erlanger since your profile has nothing on it, I’m not sure your experience level, but you are obviously on a mission to insult everyone on the thread that disagrees with you including some of us with a large amount of experience.

Now on the surface, it appears our sales comp and cap rate would be the same in our sale examples. My example however pointed to the expenses out of those rents while you simply stated a gross rent amount in an attempt to over simplifying. Maybe you were referring to same method, however you are forgetting that OPS posting on here have very little idea of investing and by oversimplifying your doing them a disservice. Cmon man, you gotta be smarter than this.

Now, you are attempting to argue semantics with what cap is. I gave you a compliment and said you made some good points, but here is your stubbornness........

I said cap rate was expected rate of return, not the actual return. Whether you use it in a pro forma or actual situation it's the expected rate of return and not the actual rate of return. Yes, it is what your buying the NOI for, which is your expected rate of return similarly. We are saying the same thing, just in different manners. And that's ok! Cash on cash return is what we should have educated him on, but you chose to insult everyone including the poor guy that is new and and asked a simple question. Maybe your the smartest guru out there, I just could not find anything on your experience, so I apologize.

@John Erlanger I just said in other post you were making cap rate too difficult for the OP, but now your over simplifying. Let me explain why your sales comp approach may not work.

House A gets $1000 in rent, but landlord pays gas, water, trash, electric for tenants so now he really only gets $700 in rent

House B gets $1000 in rent, but landlord pays none of these

Which is more valuable to an investor? In your theory, they are both worth the same, but if you would have looked at the cap rate, you could have saw a red flag that would have caused you to investigate further during your due diligence.

These two examples are not worth the same to investors

Appraisers also look at these factors when appraising income properties and they adjust accordingly.

@Samuel Gates the cap rate will not tell you if your overpaying for it, only you can do that. When you evaluate a property, your not overpaying if the numbers work for your goals.

A better metric is to look at your debt service coverage ratio as this number doesn’t do a lot of lying. It’s also what your lenders are going to use.

@John Erlanger your making some good points on this thread although I think your taking a fairly stubborn and close minded approach to do so. You have a good handle on cap rates, but your opinion is just that, your opinion. While you may not use cap rates in a certain fashion, that doesn’t mean others don’t.

You stated you can not value SFR's using a cap rate. That's just not true. Most commonly, we would look at sales comp approach, but if your selling a portfolio of SFR's you can certainly market that portfolio based on a cap rate rather than a sales comp approach.

You made the mention several times about people overpaying for a property. How do you know they are overpaying? A property is worth what someone is willing to pay in a moment in time. Overpaying takes many different forms and just because you wouldn’t pay the amount, does not mean someone else overpayed. An example of this might be someone with 1031 funds set to expire and they have to pay retail price for a property. In your mind they may have over paid, but in their eyes, they saved a whole heck of a lot of taxes.

This thread had downplayed the importance of understanding cap rates for the OP, but cap rates are huge part of this business and for us larger multi-family guys, an extremely important metric in negotiation and causing a seller to justify their price. Additionally, for the large number of people that are infatuated with the BRRR, rest assured, cap rates will come into play if your brrring a multifamily deal when you get to the refinance part.

Cap rates are the expected rate of return on a commercial investment property. Of course that expected rate of return is affected by mortgage, capital improvements etc which after subtracted, take you to your true cash flow. This is what your trying to say, but it’s getting washed out because your trying to make it too difficult.

Investing is common sense and the numbers do not have to be difficult to understand with crazy chalkboard formulas.

@John Erlanger GRM's have many uses other than your statement and are used in large multi families and large syndication deals. They are just one of many metrics investors use to filter listings and leads. I actually would never use GRM for any metric in a small deal, doesn't make sense.

@Samuel Gates I'm not sure why your looking for cap rates for an area as any analytics you find for a city are going to be based on HUD reporting and not an accurate reflection of what the market is doing. However, just go to HUD website and you can find the data. If your investing, the cap rate your looking for is what you feel comfortable with based on your strategy.

@Joe Villeneuve WOW! I don’t know how I missed this thread! Guess I was out actually buying assets while it seems a few were trying to figure out what an asset was. (Totally kidding, nobody throw a dagger at me). This was fun reading for the last 20 minutes.

Joe I agree with 50% of your opinion, but lots of good points! Lol. How in the world do you have time for these long threads?

@Justin Sullivan good feedback and not bad advice at all! I certainly understand your point and your NOT wrong, we just see investing differently. Also, no need to get frustrated and say last post! The healthy conflict we have on here and the different views that so many of us have is what makes this site so valuable!

On my example I rounded a few numbers up to 20k, but closing costs were less than 1k and I found him the property for 18,200. Taxes are paid ahead at closing, so those are taken care of for 6 months at least. Your only holding cost is insurance and utilities, which is why we left 5k from the 45k in reserve and that will carry for awhile. Now, he rehabs one side, gets it rented and money coming in, then rehabs other side and things are good. 0 cash from his pocket. Of course your actually using real money, just not yours. If he saves 10-15k what does that buy him in real estate? Barely enough for down payment on a small investment property and he’ll have to leverage it anyway. All loans you are a personal guarantor, but with every investment there is a risk which is why smart investors buy right and have multiple exit strategies.

I’m not telling you these things, sounds like you already know all this, but it’s for others benefits to see our different view points.

What if rehab goes over budget? What if rehab doesn’t go well, what if you can’t get renters? Etc etc etc.....let me answer that.

What if your property burns down, what if 13 of your buildings get hit by a tornado? What if a car drives through your property running from the police? Lol, I’ve had all those happen, so let me answer.........

Those are all fears and we control our fear. We can let fear hold us back and dictate our lives or we can harness fear and use it as a propellant to success! So if those things happen, we grit down, work harder, be creative and find a way to overcome.

If we wait until the time is right, if we wait until we have the right amount of money, if wait for the purple unicorn to arrive, we will miss so many opportunities.

Great feedback and opinion buddy! It’s great to see different views and there is nothing wrong with that!

@Justin Sullivan that’s why I responded to you and not him because you said it was BS to do lol! My reaction was only to that point.

You and I are on the same page as you need to educate yourself before jumping in. Read my second post after that with him adding value to a mentor.

However, your post to him did not address new beginners, it simply said you can’t do real estate if you don’t have any money. You need very little money to just get started and you can absolutely get started with no money. While it’s harder, much harder, you can do it. There are plenty of ways to finance real estate outside of using private money also, so I don’t want him to limit himself.

Let’s talk creative financing - I had a new investor that had 0 cash but wanted to jump in. I had him go to SOFI online and take a 45k personal loan. It was at 9% interest. I found him a duplex for 20k, he had to put 20k rehab in it and each side rents for $850 per side. He’s getting ready to refinance traditionally, but how much of his own cash did he spend????????? 00000000000000

So yes even a new investor can get in without money saved up. That’s just one of many ways

@Ryan Guffey lots lol! Send me PM and we can chat there.