How do you add value or create value for your investors?

Question

We like to use a little thing we call the magic formula. $1/Cap Rate = Valuation

At a 6% Cap Rate, Every Dollar of Income is Worth $16.67 in Value. Why this matters to an investor when looking at a syndicator is to forced appreciation or added value. For example $30/month profit on flat-rate utility. On 272 unit property. Would equal $8160 x 12 months = $97,920.00

$97,920/6%= $1,632,000 added value!! This little nugget is definitely a GOLD mine.

Paul Moore · Answer

@Robert Martinez, your simple post could change someone's life.  Readers, if you didn't know that formula, think hard about it. And plug in some of your own examples.  This is one of the most powerful concepts in the real estate investing realm and is the reason I believe most of the Forbes 400 wealthiest Americans invest in commercial real estate. This is why I do (if I had to choose only one major reason).

The opportunity to force appreciation (using this magic formula) in a commercial real estate deal is not attainable in residential real estate or any other arena I can think of. Thank you, Robert.

Evan Polaski · Answer

@Robert Martinez, along those lines, I just talk to them in terms they know. Cap rates, for those newer to real estate, can be hard to process mentally, since they are inverted. So I turn it around. A cap rate is the real estate equivalent of a price earnings multiple. A 5 cap is a 20 multiple.

Again, this is the same conversation you are having but in a more common language.

Jeffrey Donis · Answer

Great post! Bringing our investors deals that we are willing to invest in ourselves is how we ensure the deal is great for everyone.

Peter Nikic · Answer

I like this, I've been saying for years, that $1 increase in rent per month is equivelent to increasing the property value by $120+

Robert Martinez · Answer

It is the little things. They have such a profound correlation. This is where the Jokey matters in the horse race! Glad I can help others.

Rick Martin · Answer

I thoroughly vet the operator, market, and deal before passing it along to my investors. I sift through many to provide only the ones that make sense, and they can decide from there.

Robert Martinez · Answer

We like to use a little thing we call the magic formula. $1/Cap Rate = Valuation

At a 6% Cap Rate, Every Dollar of Income is Worth $16.67 in Value. Why this matters to an investor when looking at a syndicator is to forced appreciation or added value. For example $30/month profit on flat-rate utility. On 272 unit property. Would equal $8160 x 12 months = $97,920.00

$97,920/6%= $1,632,000 added value!! This little nugget is definitely a GOLD mine.

How do you add value or create value for your investors?

Most Popular Reply