I was looking through LoopNet.com for a multi-unit property, but like most listings online, it does not give all the figures for me to put in the BP rental property calculator.
I was wondering how you guys find that information out in order to analyze the property, and find if it's a good deal. Do you contact the real estate agent or broker to ask for that information? Do they give it out for free?
I appreciate all responses.
Have a great day!
Stuff on Loopnet ought to have an associated rent roll from owner. But YOU should know your rental mkt and be able to do the math. Also, you need.to go and look at it. I Walk a property with a digital voice recorder and note, in five recorded minutes (by using the pause button while recording) what a building needs done to it. Then I turn my verbal notes into figures in a spread sheet. Since I know what each unit should rent for, I can figure out the building's annual income. After a while you can do that in your head. What is your target ROI? Cost of property plus cost of repairs divided by annual net equals ROI. If your number is too low, don't buy it.
Thank you very much for your response. I am still very new to real estate, so I am not fully sure about the ROI. If I was to buy the property, I would like good cash flow of course. From some of the figures that I saw, the CAP rate is 11.18%. I have heard that a cap rate above 7% is good. What do you think of that?
I definitely plan to drive around the neighborhood and take a look at the property. I am not fully familiar with the market in Sacramento, CA, but I am trying to learn at the moment.
Thank you once again for your response.
Cap rate is one of those things that is a little bit hard to define what is "good". It really depends on your risk tolerance. A lower cap rate can often indicate a more stable property, whereas a higher cap rate might indicate a greater level of risk involved. For example, typically you see your C class apartments with higher cap rates, but C class also usually means much more time spent managing the property and dealing with tenant issues. These are of course generalizations, but often prove to be true. Talk to a local commercial broker to find out what the average cap might be in the area you are looking in and use that as your benchmark. Remember, ROI is a return on the invested dollars you have put into the property (NOI/Invested Cash)...Your cap is the return you could expect if you had paid 100% cash for the deal (NOI/Purchase Price). If you plan on financing the property, your desired cap (probably driven by the local market) will be used to price the property and not really in the ROI calculation.
Joel, above, has me pegged: I have class C property and manage it myself. Bought the properties during the last downturn, and generally aim for 20 % ROI. That's considered "aggressive." But I can do all my own work (excepting when the city requires licensed trades, of course), and don't take into account what I would have paid myself. So it's really a false number, in that respect. If I were paying a PM company, that would take 8 % of the gross right there, and voila: normaler numbers. I know that's poor english, but it makes the point. And also as Joel points out, I am part builder, part social-worker. The point is, taking what I would pay myself out of the equation, I want a building to pay for itself in 5-7 years. Not every market will support this sort of return. Not every investor is in a position to do this full time. I was able to get it all up and running because my wife supports our household, so I was really lucky in that respect. Plus she's an awesome real estate researcher who helps identify the properties. So, in that respect, do you have a good "team" to be a part of? Having good tradespeople is also important. Tip: pay them on time and they'll always be happy to show up when you need them. But doing this full time means no one tells me I "get" three weeks vacation a year. I have tremendous flexibility, can attend my kids' school events and be there for almost every important thing. But when I have to get a building rehabbed, it's 7 days a week until it's ready.
One more thing: don't just do car fly-bys. Work with a good agent, or call the listing agents, and start to tour a lot of properties. Get to know basements. They tell the most about a building. I have a thing about cellars: if I wouldn't feel comfortable working in them, I'm sour on the building. There has to be good headroom and, ideally, it's dry.
Thank you very much for your advice. I will definitely get in touch with a local broker to learn about the cap rate in my area. I am still very new, and need to learn about my local market here in Sacramento.
Do you buy and hold?
@David Epstein Thank you for your response. Since I am very new to real estate investing, can I get some advice on how to find an agent that will help me find good deals? I have heard a lot of negative things from others who claim that a lot of real estate agents will tell you anything to get you to buy a property (whether is a good deal or not) so they can get their comission.
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