Updated about 9 years ago on . Most recent reply
New member from New Orleans!!!
Hello All,
I'm Jabari from New Orleans. Pretty new in real estate. Just closed my first wholesale deal and now stuck between buy and flip and rentals. I have some cash and my home I live in now to leverage the next deal but just not sure what my next step should be. My current goal is to create cash flow.
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@Toby D. I was talking about cash on cash return, not cap rates. Cash on cash return is simply the amount of cash you initially invest into the property compared to the income generated by that property.
Cash on cash return = net operating income / total cash investment.
The net operating income (NOI) is simply the annual rental income minus the operating expenses.
The total cash investment is all the cash that you have to pay in order to make your rental property operational. This means, the amount of money to pay to purchase it, closing costs, rehab costs, and loan fees (if you take a loan from the bank).
I'm not knocking you here, but I'm not sure how you are calculating things.
It's hard to get a 10% cap rate on most investments in New Orleans, even on larger multifamily properties. The capitalization rate, or cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $200,000 and it generated an NOI of $20,000, then the cap rate would be $20,000/$200,000, or 10%. That's $1,667 per month AFTER expenses as this is based on the net, not the gross. To achieve a 20% cap rate that same property would have to generate an NOI of of $40,000 which would be $3,333 per month. And again that this is based on net, not gross.
If you are getting more than 2% of the purchase price per month in rent, then using that same example of a $200,000 purchase price you are saying you can rent it out for $4,000 per month?
Again, not knocking you here so don't take offense. Just trying to understand where and how you are able to do this as I have not seen numbers anywhere near this in the Greater New Orleans area.