All Forum Posts by: Alvin Sylvain

There is only one way to calculate Cap Rate. NOI divided by Purchase Price.

Net Operating Income is Annual (Income minus Expenses).

And here's where it gets tricky. Income is pretty straightforward, but which expenses do you include?

Actual maintenance and repairs? Planned or expected maintenance and repairs?

Vacancy rates? How much? Actual or expected?

Property management? What if you manage it yourself? (I'd pay myself a salary so it'd be the same)

Capital Expenditures? Actual, pro-rated, planned? (Just how old is that roof anyway?)

Insurance, HOA, Property taxes? (I've seen sellers leave out the property taxes, I think to artificially boost the cap rate).

Utilities? Who's paying, landlord or tenant?

My recommendation is to use a calculator such as "DealCheck.io" or the one on BP. Adjust the options to what you feel is a good way to do things. For example, I always use an 8% Vacancy rate, approximately one month. I use a 2% CapEx for newer properties, and 5% for older ones. (Built 5 years ago? That HVAC will be fine for a reasonable amount of time. Built 50 years ago? I'd be surprised if it's still working tomorrow.)

Once you have the settings where you want them, run all your prospective deals through that same system. Your cap-rate may not agree with anyone else's (I never get the same answer as the seller or the agent) but at least when you compare the deals, you're comparing your apples to your apples, not somebody else's oranges.

You need to contact a tax professional, particularly one with experience in MF investments.

I expect there is something changed with the new tax law that's affecting it.

well, it IS a thing, but you may want to get legal advice on whether it has any advantages over an LLC for your particular situation.

A quick search reveals that an LLC can have multiple owners, so there might not be much upside to the LLP. (which may explain why you rarely, if ever, see it mentioned on BP)

So I'd like to hear from somebody who knows.

There is a book called "The Millionaire Next Door", which I have not read, but I've heard a lot about. You might be surprised to find out which of your neighbors with overgrown lawns, paint peeling walls, and beat-up cars, are in fact fabulously wealthy. They either invest in RE, own busines(es), day trade like crazy, or something. Whatever it is, they're doing what they love and don't feel the need to waste money showing off how much money they have.

Me, I still want a Porsche 911 convertible. Blue.

Question on this topic for them in the know: would not an LLP be more appropriate than an LLC?

Limited Liability PARTNERSHIP.

 All we can do at this point is wish you the very best of luck! And do post updates. I'd feel pretty guilty if anything at all went wrong, so then it's my fault! *  

*disclaimer: no, it wouldn't be my fault, but I'd still feel guilty

 You sound like my wife! I would run the numbers on the applicants, my wife would meet them and get a "feel" for what kind of people they were.

An applicant didn't get into the house without a thumbs-up from both of us.

The strategy has been successful so far.

 I understand all that. I'm just saying that coming in from out of state shouldn't automatically disqualify someone. The background check services are nationwide and have the ability to vet anyone anywhere, so if there's an eviction or a bankruptcy or a 300 credit score or a felony rape conviction, that information should available no matter where the applicant hails from.

If you can get all that info, and as necessary charge an extra application fee, what do you care if he's from next door or from Mars?

I think it's perfectly reasonable to lease an apt sight-unseen in the situation as described. I mean, come on, you get a job in another state, you're short on funds, what are you supposed to do? Quit the old job 2 weeks early (income stops!) so you can drive down and search for an apt? (motel expenses!) And what do you do with all your STUFF in the interim? (Storage expenses!) So much easier to just find a place, send a check to lock it in, and on the scheduled date, move you and your stuff on down. Turn in the old keys, pick up the new keys, and get on with your life, with as little expense and disruption as possible.

 Well if it makes you feel any better, RUN AWAY! RUN AWAY!

OK, have we got all the negative chi flushed out of our system? Good!

Remember, in this business, like most others, you have to be cautious -- and bold! How you balance the two is up to you.