Should I Use Cap Rate or ROI?

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Should I Use Cap Rate or ROI?

Julie Silvestro
Peoria, AZ · Member since 2017 · 27 posts · 6 votes

Hi All,

I would like to play a game inside of the Bigger Pockets forum; nowhere else can I get the opinion of so many valuable industry professionals. The game is what do y'all think is a better word for my marketing purposes? Cap Rate or ROI?

In order to answer that you will need some context:

I am working on some content for a marketing piece, i.e post cards via snail mail. I can't decide if using Cap Rate vs. ROI in the messaging is witty or will disconnect us from our readers.

The post card will be going out to Apartment Owners and I want to illicit the best response possible. What a better way to get real data before we launch then to ask the community!

We are claiming our services can provide up to 60% Cap rate/ROI in most cases. I understand that Cap Rate is basically {Net Operating Income/Property Price} vs ROI is {Net Profit/Cost of investment}.

I feel that since it's not an actual Real Estate Investment but rather a supplement to real estate in terms of NOI, that it may sound weird to use it in this respect.

On the other hand I want to connect to the apartment owners with language they actually use; the problem with ROI is mainly I feel it has less of an industry flare and will not resonate.

There is much more to the post card than the following but this is where we are stuck. Please review the two sentence choices, vote on one and share your rationale.

1) Introducing a Revenue Generating Internet System - You Own it - We Operate it. ROI as high as 60%

2) Introducing a Revenue Generating Internet System - You Own it - We Operate it. Cap Rates as high as 60%.

Also, does anyone have a good reason why I should not use Cap Rate in this context?

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y

Definitely ROI ... saying that your service raises the CAP rate demonstrates that you either don't understand CAP rate or are trying to fool those that don't understand, and neither is good. Short of physically picking up a 10 unit apartment complex and moving it to another market, you can NOT change the CAP rate ... if you improve the NOI of a commercial property (5+ units), then you do NOT increase the CAP rate (which is set by the market), you instead increase the value of the property (Value = NOI/CAP). If you are trying to apply CAP rate to SFRs or under 5 unit buildings, and then saying your service will increase CAP, then you are using the term wrong twice.

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    I'm with @Percy N. on that, maybe you figured that out, but you need the back end support at 2:am in the morning if there are any problems, you would be acting as the Internet provider. I have Internet in my student rentals that i provide as @Cooper Bert mentions, as matter fact i have the door locks on one of them and thermostats on all of them, this way i can control the heat from anywhere. I provide free internet to the students and is part of the reason my get rented. Any problems that i can not solve over the internet by resetting the router remotely or changing a setting, i just contact my internet provider and let them fix it. each room has cable and internet connection as well as WIFI in them, so no service tech would have to run lines. 

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    I would stay away from using any real estate jargon. I would use percentage return on your money.  Keep it simple.  You are only interested in having someone contact you and ask for you to tell them more.  Based on the conversation you can give them numbers and ratiios.

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Cooper Bert:
    Originally posted by @Julie Silvestro:
    Originally posted by @Bruce Petersen:

    This feels or sounds like an MLM pitch someone hit me with couple years ago?

     It is not. It is simply a B2B Internet solution. Essentially the apartment owner buys and then owns the internet infrastructure and can charge the residents for Internet services, we also manage and operate the services so that it is a hands-off upgrade to the property.  It's like "Bulk internet" "bulk WiFi" or "wholesale managed Internet services" but has some very distinct differences technologically and ownership wise. 

     @Julie Silvestro

    This reminds me of a problem we've run into regarding internet service to our SFR that we rehab and rent long term. Maybe you have a solution for it.

    We do not provide internet service to our tenants but we totally rewire our homes with 2Gig cable and high bandwidth distribution.  We also install the Schlage Connect internet ready, automated keyless entry doorsets.  These doorsets can be programmed by internet from any device (computed, tablet, phone, etc.).  The doorset has an alarm built-in for opening, unlocking, etc.  They allow us to remotely give repair contractors a one time code for property entrance, remotely open doors for locked out tenants, allow tenant parents to control/track the in/out of children, etc.  

    The problem is that the doorsets need internet wifi in order for use to use these features.  The tenant provides their own wifi and we do not want to ask them to provide us acces to their wifi system.  Any thoughts or solutions you might have for this issue?   Thanks.

     @Cooper Bert 

    I am assuming the SFR are not all in the same neighborhood? If they are in fact spread out (like more than a few hundred feet from each other) than you may have very limited options.

    Best Option: 

    If they were all in the same neighborhood, say an HOA type community, then we would suggest a service like our flagship service Property-Wide WiFi (PWW). Implement that and then turn all your residents into your paying customers on your network. Thus you could set up a separate, secure partition to the network for the security and for the door locks and start to bring in an additional stream of revenue. Further, the devices are all part of the future of things called the Internet of Things (IoT) and you would now be ready for anything  the world of IoT throws your way! You would Future Proof in a lot of ways. 

    Alternative:  

    I picked the brain of one of our engineers, he said that you may be able to use the following work around. Like all engineers he said that he wouldn't truly know until he could get his hands on the devices and know more of the situation. 

    Step 1) Have anyone who you want to use the door-locks to set up a mobile hotspot (WiFi) from there smart phone (or tablet). 

    Step 2) Have them set the SSID (name of the network) and the encrypted password (for that same network) as identical to the locks (or whatever IoT you plan to use).

    When the contractor (or whomever) comes up to the door, they should be able to turn on their HotSpot and the door lock would automatically associated to that HotSpot and connect because the SSID and the password are an exact match. Remember they would in fact have to be an EXACT match and yes they are case sensitive.  

    You can test this out and let us know if it worked ? :)  

    Hope this helps

    Julie

    1Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Bruce Petersen:

    @Julie Silvestro, interesting concept.

    I hope I didn't come across rude, that was not intent.  Sorry if I did.

     No Bruce I like all the feedback, your opinion is valuable in discovering where we are possibly communicating ineffectively. 

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Steve Vaughan:

    As an amenity to our young professionals (mostly) in our old brick apt bldgs, I started offering 'free wi-fi' and upped the rent for new folks $25/mo. The fiber optic service costs me $50/mo for every 4-5 units, so I do see a high ROI per dollar spent but my biggest benefit is no more dealing with yet another hook-up of new cable/satellite or internet service. The brick is a foot thick!

    All apt owners hate dealing with installers, a million dishes and siding blow-out. I'd address that pain point in my marketing as well, Julie!

     I love the insight here, up-vote!  Also, great to see you taking advantage of an easy revenue stream for your property, congrats! I hope it is working as well as you would like with little to no hassles (Would be a shame to see you trade one hassle for another). 

     I see this "pain point" as huge in the TV (dish) space especially. We offer a really nice IPTV solution and a Bulk Direct TV which are both effective in removing unsightly dishes from balconies and roofs and bypassing installation and set up of both Internet and TV. 

    We have a tagline for our Internet product that speaks to this, Just Move-In, Log-On and Go! So not only does the owner avoid these install issues but the residents now get Internet within a few hours, and they don't need their own modem or router. Its hassle free for everyone involved, including the leasing staff as we handle all the operations of the system. 

    Thanks for sharing!

    Julie 

    2Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @David Faulkner:

    Definitely ROI ... saying that your service raises the CAP rate demonstrates that you either don't understand CAP rate or are trying to fool those that don't understand, and neither is good. Short of physically picking up a 10 unit apartment complex and moving it to another market, you can NOT change the CAP rate ... if you improve the NOI of a commercial property (5+ units), then you do NOT increase the CAP rate (which is set by the market), you instead increase the value of the property (Value = NOI/CAP). If you are trying to apply CAP rate to SFRs or under 5 unit buildings, and then saying your service will increase CAP, then you are using the term wrong twice.

     Thank you for your vote! 

    One clarification, we are not saying we can change the Cap Rate of the property, rather the Cap rate or ROI is X amount for our service. I think your response sheds more light on the common theme and probably the best answer to my original question and that is; saying Cap Rate is way to confusing to the buyer. As they say a confused buyer is not a buyer at all!

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Immanuel Sibero:

    @Julie Silvestro

    Interesting to see the different takes that people have on this thread. My take is:

    - You're trying to market your service to apartment owners as an "investment".

    - It's a potentially high yielding investment so you want to effectively communicate this to apartment owners using their "lingo".

    - You found out that apt owners, in their lingo, frequently use "cap rate" as a measure of return on an "investment" whereby the higher the cap rate the higher the return.

    - So you're thinking - in my marketing, why don't I use the term "cap rate" to describe the potential high return of the service that I'm offering. Surely this will convey my message better than the term "ROI", after all just about every real estate investor knows what cap rate is.

    - So your question is: which is better -

    • Buy my service, it's an "investment" with 60% ROI... OR
    • Buy my service, it's an "investment" with 60% Cap Rate.

    If I have described your original question correctly, then my recommendation is scrap the cap... :-)

    Reasons:

    - As it is, there are already many investments marketed using "cap rate" where cap rate is totally irrelevant - single family residence, turnkey SFR's, duplex, triplex, etc. To market internet service with cap rate is kinda out there...lol

    - Cap rate is not even a measure of return.

    - You shouldn't think that you can actually connect better with real estate investors (i.e. apartment owners, in this case) by discussing cap rate. It's the most misunderstood metric, in my opinion.

    Cheers... Immanuel

     WOW! Very nice regeneration of what I was trying to ask. You may have said it more clearly than I thought it... Up-vote! 

    Thank you for your recommendation, I believe we are going to scap the Cap!  

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Percy N.:

    Cap rates are typically used to quantify returns on physical real estate.

    You are not offering real estate and thus I would express your profit potential in terms of ROI.

    Now, it seems there are any questions that come to mind such as do I need to purchase or lease the equipment (routers, etc)? Who will do the installation? Who will provide technical support? Who will monitor the efficient working of the connection, etc?

     Thank You for your vote. I think your simple but logical answer is good. 

    Answers to your questions:

    -Yes you can purchase or lease. What’s nice about our lease program is it's wrapped into your monthly payment. Effectively for $0 down you can set up a system and have your residents pay for the overhead and your profit margin. Why not leverage all those consumers that you have control of already and give them a superior service at the same time?

    -We consult, design, install, on-board, manage, maintain, support and proactively monitor the entire solution (pretty much in that order). It is completely hands free, the way it should be since most are not Internet specialist. Do-it-yourself systems rarely succeed at a high level; I've seen plenty fail badly in fact. We are what we call a Full-Service Internet Provider (FSIP) and we insure success from end -to end.

    Further, many don't know this but we also consult and support around the business side of things for the property owner. That is to say we are willing to prove two things 1) Technology: We guarantee that our stem is technologically superior to the local providers and will meet or surpass your expectations. We offer this through our "Try-It-Before-You-Buy-It Program" 2) On-boarding: We prove that your residents WILL be happy to pay you (FYI they end-up saving too) for a superior service, through our "prove-it program" that we survey, inform, and take pre-orders to the system long before it is paid for.

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Shawn Devoid:

    I see it as a vale-add alternative income-stream for residential investors achieving a 60% ROI.

     We do too. Thank you for your input! 

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Lesley Resnick:

    I would stay away from using any real estate jargon. I would use percentage return on your money.  Keep it simple.  You are only interested in having someone contact you and ask for you to tell them more.  Based on the conversation you can give them numbers and ratiios.

     Yes we would love the opportunity to have these conversations. thank you for your input! 

    0Reply
  • Cooper Bert
    Harrisburg, PA · Member since 2015 · 43 posts · 52 votes
    9y
    Originally posted by @Julie Silvestro:
    Originally posted by @Cooper Bert:
    Originally posted by @Julie Silvestro:
    Originally posted by @Bruce Petersen:

    This feels or sounds like an MLM pitch someone hit me with couple years ago?

     It is not. It is simply a B2B Internet solution. Essentially the apartment owner buys and then owns the internet infrastructure and can charge the residents for Internet services, we also manage and operate the services so that it is a hands-off upgrade to the property.  It's like "Bulk internet" "bulk WiFi" or "wholesale managed Internet services" but has some very distinct differences technologically and ownership wise. 

     @Julie Silvestro

    This reminds me of a problem we've run into regarding internet service to our SFR that we rehab and rent long term. Maybe you have a solution for it.

    We do not provide internet service to our tenants but we totally rewire our homes with 2Gig cable and high bandwidth distribution.  We also install the Schlage Connect internet ready, automated keyless entry doorsets.  These doorsets can be programmed by internet from any device (computed, tablet, phone, etc.).  The doorset has an alarm built-in for opening, unlocking, etc.  They allow us to remotely give repair contractors a one time code for property entrance, remotely open doors for locked out tenants, allow tenant parents to control/track the in/out of children, etc.  

    The problem is that the doorsets need internet wifi in order for use to use these features.  The tenant provides their own wifi and we do not want to ask them to provide us acces to their wifi system.  Any thoughts or solutions you might have for this issue?   Thanks.

     @Cooper Bert 

    I am assuming the SFR are not all in the same neighborhood? If they are in fact spread out (like more than a few hundred feet from each other) than you may have very limited options.

    Best Option: 

    If they were all in the same neighborhood, say an HOA type community, then we would suggest a service like our flagship service Property-Wide WiFi (PWW). Implement that and then turn all your residents into your paying customers on your network. Thus you could set up a separate, secure partition to the network for the security and for the door locks and start to bring in an additional stream of revenue. Further, the devices are all part of the future of things called the Internet of Things (IoT) and you would now be ready for anything  the world of IoT throws your way! You would Future Proof in a lot of ways. 

    Alternative:  

    I picked the brain of one of our engineers, he said that you may be able to use the following work around. Like all engineers he said that he wouldn't truly know until he could get his hands on the devices and know more of the situation. 

    Step 1) Have anyone who you want to use the door-locks to set up a mobile hotspot (WiFi) from there smart phone (or tablet). 

    Step 2) Have them set the SSID (name of the network) and the encrypted password (for that same network) as identical to the locks (or whatever IoT you plan to use).

    When the contractor (or whomever) comes up to the door, they should be able to turn on their HotSpot and the door lock would automatically associated to that HotSpot and connect because the SSID and the password are an exact match. Remember they would in fact have to be an EXACT match and yes they are case sensitive.  

    You can test this out and let us know if it worked ? :)  

    Hope this helps

    Julie

    Julie, Thanks for the great work-around idea! Our renovated SFR are not in the same area or even the same suburbs in some cases. We do have a new build community of rental SFR on the drawing board so your PWW product may come into consideration in the future. We are trying to work out the zoning of a cluster of rental SFR with the municipality. The don't like the idea of rental houses together but have no problem with multi-attached townhouses and apartments. Makes no sense??

    Your engineers came up with a good technical work-around to the wifi/doorlock issue but it creates some logistical issues.  The reason we want remote access to the locks is to provide temporary passcodes for contractor entry.  We don't want the contractor to have ongoing access to the property for security reasons and tenant assurance.  My understanding of your work-around is that the contractor would always be able to connect with the doorlock and gain entry once the hotspot was set-up.  I also don't think most contractors are technically savvy enough to setup hotspots or even know what a SSID is.  It's hard enough for them to remember the temporary code we give them and then figure out how to use the keypad. (I'm not joking!).

    My maintenance employees already have a permanent access code so I don't need a work-around for them.

    Side-note: My in-house contractors were thrilled when I showed them how to setup free hotspots on job sites with the FoxFi app.  They now can use all their Wi-Fi laptops, tablets and toys at n/c.  The upside is that they have instant access to user & parts manuals, tech support, e-mail and can place product orders direct for pick-up.

    1Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y

    I agree that you would have to train technologically illiterates and that's no fun. Although having the SSID and password for the Hotspot that associates with the IoT device would only be the first layer of security. You would still have the ability to have the actual codes the doors changed as you always do. 

    So having the SSID and password to the Hotspot does NOT get you in the door, you still need the final code for entry, right? 

    1Reply
  • Cooper Bert
    Harrisburg, PA · Member since 2015 · 43 posts · 52 votes
    9y
    Originally posted by @Julie Silvestro:

    I agree that you would have to train technologically illiterates and that's no fun. Although having the SSID and password for the Hotspot that associates with the IoT device would only be the first layer of security. You would still have the ability to have the actual codes the doors changed as you always do. 

    So having the SSID and password to the Hotspot does NOT get you in the door, you still need the final code for entry, right? 

     You are correct, the contractor still needs the temporary code to open the lock.  

    However, I think I buried the lead in my last post.  - The problem is the WE still don't have remote internet access to the door lock to enter the temporary codes.  The contractor doesn't really even need internet access because he just punches in a code to the lock keypad and the motorized deadbolt unlocks.  That code expires whenever we set it up to expire or when we manually delete the code.  Again, its US that need remote access to the door lock via internet, not the contractor.

    Sorry about that.  I'm a reformed tech programmer and sometimes get caught up in the thrill of the tech hunt and forget the logistics of how the tech solution will be applied in real life application.

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y

    I understand the dilemma NOW. You definitely need a constant and reliable connection, even when you are not around. I suppose a possible solution would be different locks with a network card that is capable of connecting via 4G LTE, not sure what's available out there.  Sorry we couldn't be of more help on this one, we can connect any device to our networks but when there is no network to connect to I am at a loss. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    I would market this as an "additional revenue stream to increase cash flow per door by $XX per month". Much like laundry or other services, you are just giving a landlord a way to make more money. Hammer home the point that the landlord doesn't need to do anything. It is like allowing a pop machine in your building. Someone else stocks it and you get a check each month. Make it easy and don't beat around the bush. I prefer direct ideas. I fear you are trying to rope them in with some interest leading statement, which will probably just land it in the trash.

    Also have you thought about advertising with BP directly? Sponsor a podcast may be a more effective way to get your message out. I don't know how much that costs, but it seems more effective.

    2Reply
  • Immanuel Sibero
    Carrollton, TX · Member since 2015 · 415 posts · 371 votes
    9y

    @Joe Splitrock

    Now that's a great suggestion - "additional revenue stream.." which is essentially dollar for dollar increase in NOI.

    @Julie Silvestro

    Using Joe's suggestion above, you could actually incorporate "Cap Rate" in your marketing material, or at least in your conversation with the apartment owners. Assuming a 100-unit apartment and a market cap rate of 8%, a $20 per door per month additional revenue stream means you have just increased the value of the apartment by ... <gulp> ... a whopping $300,000. Yeah you're talking their language for sure!

    Immanuel

    0Reply
  • Caroline Barnett
    Las Vegas, NV · Member since 2017 · 16 posts · 10 votes
    9y

    @Julie Silvestro I would definitely vote for the ROI option in the campaign. I think it's much more readable for an average investor.

    1Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Caroline Barnett:

    @Julie Silvestro I would definitely vote for the ROI option in the campaign. I think it's much more readable for an average investor.

     Thank you for your input

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Joe Splitrock:

    I would market this as an "additional revenue stream to increase cash flow per door by $XX per month". Much like laundry or other services, you are just giving a landlord a way to make more money. Hammer home the point that the landlord doesn't need to do anything. It is like allowing a pop machine in your building. Someone else stocks it and you get a check each month. Make it easy and don't beat around the bush. I prefer direct ideas. I fear you are trying to rope them in with some interest leading statement, which will probably just land it in the trash.

    Also have you thought about advertising with BP directly? Sponsor a podcast may be a more effective way to get your message out. I don't know how much that costs, but it seems more effective.

     @Joe Splitrock

    Have you been reading our website...lol?  I really would love to convey this concept, I think it really is the best analogy. Nice thinking! 

    We are considering some blogs and some market place ad's right now, we would consider a podcast as well down the road. 

    Thank you for your input!

    Julie

    0Reply
  • Julie Silvestro
    OP
    Peoria, AZ · Member since 2017 · 27 posts · 6 votes
    9y
    Originally posted by @Immanuel Sibero:

    @Joe Splitrock

    Now that's a great suggestion - "additional revenue stream.." which is essentially dollar for dollar increase in NOI.

    @Julie Silvestro

    Using Joe's suggestion above, you could actually incorporate "Cap Rate" in your marketing material, or at least in your conversation with the apartment owners. Assuming a 100-unit apartment and a market cap rate of 8%, a $20 per door per month additional revenue stream means you have just increased the value of the apartment by ... <gulp> ... a whopping $300,000. Yeah you're talking their language for sure!

    Immanuel

     We have said this a few times, but I think your right this is definitely a winning analogy to get their attention! Love your thinking here. I think based on your input we will make this line of thinking a mainstay. 

    In the past we have expressed this as a per door increase and let them do the math on total value. For Example Assuming a 8% cap rate, a $20 per door per month increase in revenue stream will increase the value of the apartment by... <gulp>... a whopping $3,000 per door. 

    Considering the cost for a enterprise sytem like ours is around $600 per door, it more than pays for itself just in property value! Which brings me to my second question which I plan on posting in the next few days.... Stay tuned. 

    Thanks for your input

    Julie

    0Reply
  • Logan Hassinger
    Specialist · Fort Worth, TX · Member since 2014 · 528 posts · 226 votes
    9y

    @Michael Le

    @Percy N. @Eric Fegan @Julie Silvestro 

    You and so many others are wrong in regards to how you are applying a Cap Rate. The purpose of the Cap rate is to provide the market a comparative figure to closed sales for given property type, in a specific  location, at given point in time. A "good" Cap rate is dependent on the context of the market. Underlying economic conditions for certain MSA's (i.e. employment rate, household income, education levels, etc), interest rates, and a host of other factors play into the direction of Cap rate movements. It is NOT a measure of return despite what BP members post, what's on Investopedia.com or any other site claiming to know how and why Cap rates are used. The formula may seem simple but the story of the market is how it's created, not just the numbers. 

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @Julie Silvestro:
    Originally posted by @Immanuel Sibero:

    @Joe Splitrock

    Now that's a great suggestion - "additional revenue stream.." which is essentially dollar for dollar increase in NOI.

    @Julie Silvestro

    Using Joe's suggestion above, you could actually incorporate "Cap Rate" in your marketing material, or at least in your conversation with the apartment owners. Assuming a 100-unit apartment and a market cap rate of 8%, a $20 per door per month additional revenue stream means you have just increased the value of the apartment by ... <gulp> ... a whopping $300,000. Yeah you're talking their language for sure!

    Immanuel

     We have said this a few times, but I think your right this is definitely a winning analogy to get their attention! Love your thinking here. I think based on your input we will make this line of thinking a mainstay. 

    In the past we have expressed this as a per door increase and let them do the math on total value. For Example Assuming a 8% cap rate, a $20 per door per month increase in revenue stream will increase the value of the apartment by... <gulp>... a whopping $3,000 per door. 

    Considering the cost for a enterprise sytem like ours is around $600 per door, it more than pays for itself just in property value! Which brings me to my second question which I plan on posting in the next few days.... Stay tuned. 

    Thanks for your input

    Julie

    So another detail here is that at $20 per month return, it takes 2.5 years to break even on the original investment of $600. I know you are trying to put a marketing spin on things, but I wouldn't hide the details about the upfront invest and payback period. Is the only option for internet going to be this service or do they have choices. For example if I pay $600 per door in a 20 unit building, is there risk that only 10 units will use my internet? That would change the payback period to 5 years or more. I think what you are offering has good value, but be clear about the risk.

    1Reply
  • Joe Cantanzriti
    Rental Property Investor · Chicago, IL · Member since 2014 · 132 posts · 74 votes
    9y
    My vote is ROI for sure, keep it simple.
    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    Julie - can you define Cap Rate?

    0Reply
  • Immanuel Sibero
    Carrollton, TX · Member since 2015 · 415 posts · 371 votes
    9y

    @Logan Hassinger

    Well said.

    It's tough when you google "cap rate", investopedia comes up relatively at the top. BP has this "twitter effect" where an investor would quote this definition and all the newbies would in turn "retweet" this definition to others. I'm a newbie myself, so I know how this goes.

    I think Wikipedia.com has better description of cap rate. It shows that the concept of cap rate is much more than just the formula NOI/Value and makes no mention of cap rate as a measure of return. I posted earlier in this thread that you could equate cap rate to P/E ratio on a stock investment. P/E ratio is not commonly used as a measure of return. Cap rate is definitely not intended to be a measure of return, but you could certainly take the simple formula and read it backwards and sideways and make it to measure return...

    Cheers... Immanuel

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