All Forum Posts by: Derek Lamonde

The power of social media...

Thanks and I'm leaning the same way for a couple of other reasons, e.g. long term tenants and established history, etc. So let me ask one more:

The ~10 Cap property bid is highly likely to be accepted. 

The ~8% bid is probably a bit low and I'm thinking the final landing price would push the Cap closer to 7%. 

So would you still prefer the appreciation prospect at the difference between 7 and 10% Cap rates even over a long term hold period? 

Hi All,

I'm extending offers for two, 2-unit properties as "buy and holds" with a lot of upsides, but unfortunately I can't have both so I have favored price-points identified. They are both A properties, but one has a ~10% Cap rate w/ a lower appreciation potential and the other is a ~8% Cap w/ a much higher appreciation potential. To compound the issue, the ~8% Cap rate has current long-term renters, but the ~10% Cap rate has one long-term renter and the other unit was previously owner occupied so my calculations are based on a very conservative average of comps. Both are in great areas as indicated by the "A", but the ~8% Cap property has the most traffic and comparably highest caliber of tenants. 

My question is:

Is the higher Cap rate w/ lower appreciation potential favorable for a long-term purchase (>10 years) or is the lower Cap w/ the higher appreciation potential and current occupancy a better bet?

My portfolio and strategy are buy-hold income generators and there is no foreseeable scenario where I would have to sell within 10 years. 

I welcome input from the BP community. 

You're correct.

Is that necessary detail to make the point that Cap rate isn't the only thing one should evaluate to determine if it's a deal?

I would recommend taking the free training on this site as it breaks down the different financial considerations of purchasing an investment property. I've been through a few of the modules and they're actually great refreshers or introductions depending on where you are in your evolution. 

In NJ you have to be careful not to over emphasize an attractive Cap rate as it can vary and may not support your long-term strategy, e.g. holding for 3 years vs. 10 or 20... I liken it to buying a stock solely based on the P/E ratio. Here we have crazy high taxes, above market value pricing and rents can vary dramatically between leases. Personally, I use the potential Cap as one of my initial criteria to reduce the volume I'm assessing. However, I also incorporate appreciation potential, price, area/rental traffic, rental history, tenant demographics, logistics, regional history, etc. and it's hard to know all that if you're not intimately familiar with the area. You're also taking a risk regarding opinions vs. facts in who you're querying for information. So if you have an agent, they'd better be sharp and in tune with your strategy. 

For starters I like a Cap of 10%, but sometimes that is more indicative of luck than anything else. For example, a property I was assessing was getting $1775 a month in one of the units and $1350 in the other, both very similar and giving me a Cap of ~11%. However, the building is almost on top of the railroad tracks, there is a lot of availability in the township, their leases are ending at almost the same time, there is only 1 bathroom for 3 bedrooms, and the listing price is probably 39k higher than it should be. So my assessment is that the NOI is not sustainable. The appreciation potential is low to say the least and I see considerable risk in keeping them rented without down-time at those rates and even worse if these folks ever tell one another what they're paying. I must not be alone because it's been sitting for 139 days now...but the Cap is great.

Hi,

I would recommend consulting an attorney for confirmation of course. My personal home was a short sale in 2012 and I vaguely recall that the contract with the bank (Wells Fargo) required me to own it for 2 years. There were a few things that were explained in the rationale, e.g. to prevent flippers and/or folks from buying and then selling back to the original owners at a discount, etc.  I don't recall that being a specific law in NJ, but was actually the bank's requirement for the sale and it varied from bank to bank. Some were 30 days, 90 days, etc. I have since investigated some potential short sale purchases and have heard this requirement less and less, but when it does come up I hear 30 days. 

Hi BP, 

The scenario is a first for me, but I am very attracted to the numbers, e.g. Cap over 10%, A area, B property, etc. Here's the rub, it's two houses on one lot. So any future sale involves someone that wants two houses on a single lot, which I can see scenarios like in-laws and/or investors big on cap like me, but that limits potential buyers to a particular demographic and I also feel like it constrains appreciation. I'm having a hard time even figuring out comps because you don't find many houses in any given area sharing a lot. So do I combine the number of bathrooms and bedrooms to compare to single homes or do I assess each house on the property against a comparable single house and multiply by 2?

I'd love to hear some thoughts on this....

What are you calling a deal?

Cap rate?

Appreciation?

Flip?

Jersey has been getting really tough over the past couple of years, unless you want to gamble on Newark, Jersey City, New Brunswick, Union or the Oranges. The pros are snapping up everything in the better areas and anything that needs work is going to cost through the nose because the contractors are working over-time since Sandy. I'm a cash-buyer and have been looking for a MFH for months w/ a 10% Cap and reasonable appreciation in a C+ or better area and am having no luck whatsoever. I'm at the point where I'll probably just dump the cash into a principal protected REIT at 7% return and avoid the hassles of dealing with tenants.

Hi All,

I've been looking for multi-family properties to add to my portfolio for a few months in Central NJ as I manage them myself. Historically, I use the GSMLS, Trulia, Zillow, etc. but these tend to have a realtor involved and driving the price to a bargain is extremely challenging. I'm somewhat open to other areas in NJ, but obviously they would need to be worth my while factoring in T&T, e.g. outstanding specs... I'd prefer a wholesaler with experience that knows the area and properties that are not in need of an extensive overhaul and/or in distressed areas. 

So you're saying not until I'm under contract? 

I was hoping for well before that as I won't even do the walk through if I'm not confident in the numbers. Some owners are much more transparent up front, which I think is great since we don't waste any time. I was hoping that I could push the issue as more of an industry norm to get to it after I shared PoF.