Comments on: The Needle in a Haystack: Shifting Through Income Property Listings

By: Mike Henderson

Mike Henderson — Sun, 25 Oct 2009 21:40:29 +0000

Cap rate is used on 95% of all commercial and apartment deals that I see. I like cap rate the best.

For residential deals you can still figure out the cap rate. Cash flow works as well. I’m familar with the Mike Ohio/Bigger Pockets 50% rule.

The other thing that I really like as well for residential property is replacement cost in this market. The market is so upside down right now (not normal market conditions) this is another good benchmark. Get this from your insurance agent when you are getting the costs on your policy. You should be able to say you are looking at a 3/2/2 of x sq. ft. in a particular zip code. They should say it costs x to replace that structure. When you have a positive cash flow and the replacement cost is 50K above your costs buy buy buy!

Bottom line is do them all. I do if it’s my money.

The other methods cost per door, GRM etc. are the best way to eliminate properties when you get ready to purchase figure out the cap rate.

By: Kyle Koller

Kyle Koller — Wed, 21 Oct 2009 20:40:12 +0000

Dave: It depends. If there are sufficient comparable income properties in the immediate area, the cap rate method is still very useful as an evaluation tool.

Bob: Residential isn’t exactly my specialty; however, one should always consider cash flow. Investors can’t even obtain commercial loans unless they can sufficiently prove that it will cash flow. Thus, projected internal rates of return are a great way to find solid investment properties.

By: Ryan Moeller

Ryan Moeller — Tue, 20 Oct 2009 23:42:03 +0000

Cap rate is a great indication of a properties operations. Many investors look at cash on cash return, LTVs, etc. I believe you must take all of them into account and make sure you have multiple exit strategies so the result is a very solid low risk deal. .-= Ryan Moeller´s last blog ..Cash Flow Duplex =-.

By: Joshua Dorkin

Joshua Dorkin — Tue, 20 Oct 2009 21:55:18 +0000

Positive cash flow for one investor (who doesn’t understand cash flow) is a huge loser for another. What do your clients typically consider to be positive cash-flow, Bob?

By: Bob

Bob — Tue, 20 Oct 2009 21:28:19 +0000

Any recommendations for residential units? Most of my clients just look at the cash flow and if it's positive they will consider it. .-= Bob´s last blog ..Want to know Why there seems to be a Sellers Market? =-.

By: Tim Smith

Tim Smith — Tue, 20 Oct 2009 03:33:11 +0000

I’m also interested in learning which if these techniques is best used for which property types?

By: Dave Sharp

Dave Sharp — Mon, 19 Oct 2009 20:59:15 +0000

I’ve heard that cap rate is relatively useless for evaluating anything other than large commercial properties. Can you really use it effectively for 4 units and less?