All Forum Posts by: Fay Chen

Cap rate is more commonly used for commercial investments and multi-family properties (4+ units). It's how other investors & lenders value the investment/property. Say your Net Operating Income (NOI) is $30K. In a market cap of 10%, your property will be valued at $300K. But you have a triplex, so your property will be evaluated by market comp. If Joe down the street just sold a few similar triplexes for $250K, your triplex will likely be valued close to $250K.

I don't find cap rate practical since I have a single family home on mortgage. Cap rate is unlevered, pre-tax, before depreciation... For all those reasons, it doesn't paint the whole picture for me. Cap rate, ROI, ROE, COC are all different ways to measure the performance of investments. I like to change things around (such as modifying the ROE in your case) so I can compare apple to apples. If you are preparing a formal report to other investors/lenders, you might want to leave out the modified equations. Otherwise, you can choose the equation that makes the most sense to your investment.

Wow, that's a lot! I hope there's a premium included in the rent for the heating bill. I have solar panels installed on my SFR. The total electric bill went from $150 to $7. Works well in sunny California. You can either lease or purchase them.

Is the seller willing to carry the financing? Please keep us posted.

I can think of 2 ways to do it:

1). You can calculate the Return on Equity (ROE). I would use the market value of the property for equity. Then you can compared it to the market CAP rate. But since it's 3-unit, I'm not sure how much this will help you.

2). You can deduct closing, tax and commission from the market value, and get the total expected equity. Use the expected equity in the denominator to get a return on expected equity. Then you can compare that to the Return on Investment (ROI) on your future investment.

@Account Closed, I'm in Pipeline Integrity Management. There's still a lot of demand for it. I guess it's more stable because all operators are required to have integrity management programs. And the certification process (NACE) takes a long time, so qualifying candidates get top dollars. Definitely a good field if you are looking for more stability.

In my area, bigger homes are harder to sell. The market seem to have resistance around 425K. So in my case, 5 bedroom would not add much value. In fact, my strategy has been to looking for big ugly homes in the area because not many people want it. So it depends on your market. Not sure if that helps.

@Trevor Ewen

 That's so true! I can imagine the difference in commission for real estate agents. But actually I've seen higher pay for engineers in TX, especially in my industry (Oil & Gas). Maybe that's why a lot of young professionals are leaving CA for TX. 

@Andrew Davis

 as the famous saying goes "Live where you want to live. Invest where the numbers make sense." That being said, you are welcome to Claremont anytime!

How much does it cost to add/convert the room? How much of the additional 40K do you get to pocket after the cost of labor material and commission? Does the market support that price?

4 of the top 10 cities are in California. Sigh...

TX, here I come!