All Forum Posts by: Himanshu Jain

Looking for information on how I can work with investors in US to invest in India. Trying to find out what are some of the legal requirements and guidelines to facilitate investments internationally. Any suggestions and pointers in this regards are appreciated.

Can you elaborate on following

1)How you got to the NOI of 203 based on the number provides, What is missing here?

2)How did you come up with LOI (Letter of Intent) Price? What all did you use to come up with tentative offer/purchase price?

Case and point - I put in an offer today on 100+ units. The asking CAP was at 9.5 - having done the research and using real numbers, it bacame clear that the true rate had I paid the asking price would have been 3.3%...

So @Ben Leybovich, can you please elaborate on what you did here with an example.
This is what I understand you did,

Assuming Asking price = 1000000
Cap rate = 9.5%

So Net operating Income= .095*1000000=95000

Offered Cap rate = 3.3%
Purchase Price= 1000000
Net Operating income = .033*1000000=33000

I am assuming after due diligence this is what the Actual net operating income is

Assuming the prevailing cap rate for this market is 8%
Take actual NOI = 33000

So the tentative purchase price can be= 33000/.08= 412500

Assuming the market cap rate is what seller is projecting 9.5%

the tentative purchase price could be = 33000/.095 = 347368

So I am not sure how you use these numbers to make an offer. I think it will be very helpful if you can share some insights on how to use these.

Correction - net operating income (Gross Rent - Vacancy and other Loss - Operating expenses)

Cap rate is usually used to compare properties in an area or for getting a tentative purchase price for a property based on the current cap rates in the area.

Cap rate = Net Operating Income/Purchase Price, So the cap rate will increase either when net operating income (Gross Rent - Vacancy and other Loss) or when Purchase Price is lower. So when you are looking at Cap rate as a Buyer you want to buy at higher cap rate that would mean either the price is low or the net operating income is high. So if you are comparing two properties at same price the one with higher cap rate would mean has a better net operating income which in turns means that high cap rate property is better managed compared to the other. Many a times I have see cap rates being calculated by using pro forma numbers which is nothing but cooked up or hypothetical numbers. Which are usually calculated assuming higher rents, and lower expenses thus increasing the net operating income. I think one needs to be very careful when looking at Cap rates for a property by itself. Some times it can be used to justify the high sales price for a property. One needs to look at actual rents and expenses along with prevailing cap rates in an area to come up with the purchase price.

I like sears outlet and other discount appliance stores in the our area. I also like commercial/contractors/builders packages available at Lowes or home depot. The package for four can be bought at a decent price. Works well if you have their card that gives you another 5% discount.

Welcome to BP! Just wondering what areas are you looking to invest in?

I think so, key thing is the that you are able to rent it out they way you mentioned it (getting rents for 12 months etc.), and you are managing it on your own. My experience is you can keep tweaking numbers to justify it one way or the other, but the gut feeling along with what you see in the area and how you feel about it matters a lot too. If I were you and I feel so strongly about the place I would go and make a conservative offer and see what they come back with.

I like the idea that you live there and can manage it on your own. I think the pro forma numbers (not actual) are very optimistic. I would use 10% vacancy rate,  that will bring your operating income to 38800, I would keep 3500 for repairs, 6000 for taxes and 2000 for insurance and another 2000 for utilities that would bring your expenses to 13500. That would leave you with 38800-12500=25300. I would also add 3300 for property maintenance as any other investor would, you can use this number for negotiations. Leaving you with 22000. Assuming you are putting in 20% down your loan amount would be around 288,000 (buying at 360000). That would leave your debt to coverage ratio of around 1.10 most of the banks ask for around 1.25% to get to that number you would need to buy around 320000. So depending on how you feel about the overall condition of the property I think anywhere in the range of 320 to 340 you should be able to cashflow positively if you manage it yourself.