All Forum Posts by: Account Closed

Well I wouldn't call one unit a prevalent market factor.  Is this a new development trying to lease up quickly?   I'm not a renter but as a landlord I have not heard of any major rent concessions.   I am in the Bay Area for the summer.  I'll have to check Sundays paper.

Where on earth are you seeing this? 

Have you also considered the possibility of your Property taxes doubling? 

Buildings DO NOT have cap rates until they are sold. The market dictates the cap rate. Now someone can calculate a cap rate based on the ASKING PRICE but that means nothing. NOw you can look at different markets and say a $10,000 NOI sells for $200,000 in San Francisco at a 5% cap rate but the exact same possible NOI of $10,000 would maybe sell for $100,000 in Indy at a 10% cap rate. The market is saying there is a chance of collecting $10,000 on both properties but they are willing to pay TWICE as much for it in SF. Wonder why that is?

Well that is basically true but I would argue that you cannot call that $7,000 profit because at the end of the year the boiler goes out and cost $18,000 so there goes any "profit".  It would be correctly called your Net Operating Income.

And while you did CREATE a 7% cap rate by your purchase you would have been better to look at what other people paid for the exact same NOI so that you don't over pay. Lets say all prior sales for $7,000 NOI have gone for $80,000. Your property is similar to these sales so you would say I'm buying a $7,000 NOI. The market is buying these at $80,000. That is an 8.75% cap rate ($7000/$80,000). You would not want to pay more than market. So computing the cap rate using your purchase price does not tell you that you overpaid $20,000.

Think of it as a comp much like comparing dollar per square foot. If properties have sold for around $400 a square foot then you could get to a probable market value of your sf times $400. Cap rate is a valuation tool used only for commercial and large residential properties. If similar property's NOI has sold for 10% cap rate then your NOI should also sell for around a 10% cap rate.

Fix ups will not change the cap rate.  The cap rate is set by the market. 

???  Are you a 10 year old school girl ?   

That makes absolutely no sense.

Well first I doubt that your calculations for 18%+ Cap rates are correct.

But more important is that you do not understand cap rates. The market is telling you that you will probably NOT collect $30,000 NOI for $166,000. In fact the market is telling you that you have a better chance of collecting $10,000 in the lower cap rate market than you do collecting the same $10,000 in the bigger cap rate market EVEN if you buy three times the properties. Do the math.