Canadian investing in Florida

41 Replies

I'm a Canadian Investing for the past year and half in Jacksonville Florida 

 currently have 4 units (two single family's and a duplex). 

Targeting properties under 50K... with cap rates around 20% and above.

Welcome @Joel Ferraz it’s a pleasure to have you here! You will find this a tremendous resource for all of your real estate needs. You may want to set up some “keyword alerts” to notify the topics that interest you the most.

All the best to you!

@Jerald Alford

Since I have not been to Jacksonville. I rely on my team of property managers, broker, inspectors and contractors who help me steer away from really risky neighborhoods.

Joel

@Jerald Alford and @Joel Ferraz ,

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Raymond

Originally posted by @Joel Ferraz :

I'm a Canadian Investing for the past year and half in Jacksonville Florida 

 currently have 4 units (two single family's and a duplex). 

Targeting properties under 50K... with cap rates around 20% and above.

 The cap rates may vary.

Originally posted by Account Closed:
Originally posted by @Joel Ferraz:

I'm a Canadian Investing for the past year and half in Jacksonville Florida 

 currently have 4 units (two single family's and a duplex). 

Targeting properties under 50K... with cap rates around 20% and above.

 The cap rates may vary.

CAP rate is pretty close to meaningless when analysing residential (1 - 4 unit) properties as residential properties valuations are based upon comparative sales and not on the cash flow produced by the business.

Account Closed Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

But to determine if its worth buying as an investment you need to know the CAP.

Originally posted by @Joel Ferraz :

@Greg F. 

I thought i responded to the CAP rate issue, but realized i didn't

what i meant with cap rates of 20% and above.... was the deals i look for should give me a rate of return of 20% or more.

@Roy N. Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

But to determine if its worth buying as an investment you need to know the CAP.

Looking for a 20% cap rate on a $50K investment/rental unit, using the 50% rule, would mean the investment would have to generate almost $20K per year or $1665+ per month. So to clarify, is the $50K the total cost of the rental or cost before any repairs? 

Originally posted by @Joel Ferraz :

@Roy N. Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

But to determine if its worth buying as an investment you need to know the CAP.

 So how does this work?

Originally posted by Account Closed:
Originally posted by @Joel Ferraz:

Account Closed 

I thought i responded to the CAP rate issue, but realized i didn't

what i meant with cap rates of 20% and above.... was the deals i look for should give me a rate of return of 20% or more.

@Roy N. Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

But to determine if its worth buying as an investment you need to know the CAP.

Looking for a 20% cap rate on a $50K investment/rental unit, using the 50% rule, would mean the investment would have to generate almost $20K per year or $1665+ per month. So to clarify, is the $50K the total cost of the rental or cost before any repairs? 

your above reasoning is correct, but this type of calculation is used mostly for commercial deals. "ROI" (return on investment)

Commercial ROI caculation:

NOI (net operating income) divided by the local CAP rate of the area  = Value of deal/property

Residential CAP rate calculation -- percent of return on initial investment--

NOI divided by total purchase price of the property including rehab = CAP 

I think there was a confusion on my initial statement.  my first post i said 

"Targeting properties under 50K... with cap rates around 20% and above".

What i mean is i have been buying properties under that price ...like few months ago i purchased a property for less than 20K including rehab.. which is now giving me 28%CAP

28% return on initial investment.

Originally posted by @Joel Ferraz :

NOI divided by total purchase price of the property including rehab = CAP 

But you are only paying X for the NOI but then including X+rehab in the cap rate calculations. That distorts the cap rate and makes it even less useful. Your calculations are incorrect.

My deals are buy and hold for rental income ( 

currently residential properties)

To determine NOI (Net Operating Income)

Yearly rent cash flow minus all related expenses = NOI

NOI divide the property purchase price ( includes all costs to aquire and rehab it rent ready) = CAP

This shows rate of return on your investment for a residential property. 

Originally posted by @Joel Ferraz :
Originally posted by Account Closed

28% return on initial investment.

So NOI = $5,600/market value (($20,000)=28% cap rate.

What is so bad about this property that you can only sell a $5,600 NOI for $20,000?

See, I think your figgering is wrong.

Originally posted by @Bob Bowling:
Originally posted by @Joel Ferraz:
Originally posted by @Greg F.:
Originally posted by @Joel Ferraz:

i purchased a property for less than 20K including rehab.. which is now giving me 28%CAP

28% return on initial investment.

So NOI = $5,600/market value (($20,000)=28% cap rate.

What is so bad about this property that you can only sell a $5,600 NOI for $20,000?

See, I think your figgering is wrong.

 to be specific the property im mentioning in this example cost me a total of 17k (rent ready)

and my yearly NOI is $4760

so NOI divide 17k is a cap of 28%

Do you agree?

Wouldn't this be considered a good deal? 

Originally posted by @Joel Ferraz :
Originally posted by @Bob Bowling:
Originally posted by @Joel Ferraz:
Originally posted by @Greg F.:
Originally posted by @Joel Ferraz:

i purchased a property for less than 20K including rehab.. which is now giving me 28%CAP

28% return on initial investment.

So NOI = $5,600/market value (($20,000)=28% cap rate.

What is so bad about this property that you can only sell a $5,600 NOI for $20,000?

See, I think your figgering is wrong.

 to be specific the property im mentioning in this example cost me a total of 17k (rent ready)

and my yearly NOI is $4760

so NOI divide 17k is a cap of 28%

Do you agree?

Wouldn't this be considered a good deal? 

About the worst deal ever! Think about it. Why is the market only willing to pay $17,000 for the possible $4,760 NOI?

Originally posted by @Joel Ferraz :

 @Roy N. Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

 Joel:

CAP rate does not indicate the quality of an investment. There are many other indicators (MIRR, PI, BER, DC) which, collectively, can give you a much clearer view of the quality of a revenue stream.

On the buy-side, It only tells you the price someone was willing to pay for a cash flow in a given market. On the sales-side, you can use the market CAP to determine what someone in the local market might pay for your property. CAP rates are driven by the NOI, which is why they are meaningless for the purchase/sale of residential properties which are valued based on comparative sales.

Originally posted by @Roy N. :
Originally posted by @Joel Ferraz:

 @Roy N. Knowing the CAP rate on a residential deal is essential. This will indicate if it's a good investment or not. To determine the value of the residential property a CMA or "comparative market analysis" is needed..you are correct!

 Joel:

CAP rate does not indicate the quality of an investment. There are many other indicators (MIRR, PI, BER, DC) which, collectively, can give you a much clearer view of the quality of a revenue stream.

On the buy-side, It only tells you the price someone was willing to pay for a cash flow in a given market. On the sales-side, you can use the market CAP to determine what someone in the local market might pay for your property. CAP rates are driven by the NOI, which is why they are meaningless for the purchase/sale of residential properties which are valued based on comparative sales.

 When one goes to the bank to get a loan on a single family home ... the bank will use an appraisal to determine the value of the home. so yes cap rates and all that means nothing to the bank in determining the value.

But for an investor who plans to rent out that house he/she would need to know if it will cash flow and give an acceptable rate of return .. on doing the initial analysis of the deal if you calculate CAP rate at 3-4% then this would be a bad deal ..you pass on it go on to the next..

Again I talking specifically residential and buy and hold...

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