All Forum Posts by: Immanuel Sibero

NOI does not include capital expenditures, nor debt service.

Cheers... Immanuel

@Jonah Richard

There shouldn't be any debate on whether or not Capex should be a part of NOI. Any such debate is misguided. The industry came up with acronyms with standard definitions such as GRM, NOI, COC, IRR, etc... etc. so that all industry participants can be on the same "page" when they communicate.

Including Capex in NOI is getting on a different "page" and makes it hard to communicate with others. When running a business (i.e. rental house or a McDonald's franchise) there are "capital" items and "operating" items. These are standard definitions that span to other industries, not just real estate. The standard definition of NOI is Net "Operating" Income, now why would you put "capital" items in something that's clearly defined for "operating" items only?

Wouldn't it get old if every time you tell people your cap rate is X, and they immediately ask you back "Is that including Capex or excluding Capex?"

Food for thought... actually McDonald's sounds good right now :-)

Cheers... Immanuel

Hello,

Properties ranging from single family residence to 4-plex (1 to 4 unit dwellings) are generally considered residential properties and as such they are valued using recent sales of comparable properties. So I would start with "comps" to estimate your acquisition costs. Once you have the "comps", you can use "cap rate" (if you so insist) to compare residential properties amongst themselves, or against commercial properties, or any other types of investments for that matter.

If it were me, I would start with the "comps", and project revenue, expenses, loan payments, etc. to estimate my cash on cash (i.e. CoC), and then run my CoC projections for as many years as I plan to keep the investment. I may even calculate the IRR. If I like the CoC and the IRR, I'll make the offer.

I usually skip "cap rate" analysis and let the savvy investors use it.

Cheers... Immanuel 

@Amanda M Laird

A residential property is valued using recent sales of comparable properties. I suppose you could list the property as if it was a commercial property by disclosing all kinds of financial information, cap rate, etc. hoping that you might get a higher price, but buyers won't pay more than market value which is the "comps".

Cheers... Immanuel

@Michael Randle

I recommend looking more into apartment syndication. There are a number of very experienced apartment syndicators right here on BP, some of whom offer study materials that cover the whole syndication process. What you described in your post is part of a bigger process which takes into account other variables such as - how long is your hold time? - what's your financing strategy? - what is your exit strategy? - what are your assumptions on exit? - what is your desired CoC? what is your desired IRR?

You may  be looking at investing in multifamily on your own (i.e. as opposed to syndication) in which case some of the above variables are less relevant but I recommend evaluating investment in multifamily as if you were going to syndicate it, hence the recommendation to look into apartment syndication.

Cheers... Immanuel

The 28% is Cash on Cash (not Cap Rate). In this case, the major repairs should be included as part of the initial acquisition costs which would lower the Cash on Cash metric. Given your assessment of the risks of this property, if you still like the revised CoC then it should not matter much whether you are required to put down 10%, 20%, or 25% down, should it?

Cheers... Immanuel 

Yuck... I'm speechless. Seriously, these tenants have got to get their sh*t together... holy cow.

@Caplan Abbey

Can you prove that you're not a Russian troll?

Can't remember who said it but he was kicked out for winning to many arguments with the wrong people... :-)

It's a shame because I learned a lot about cap rate from Bob.

Cheers... Immanuel

@Nate Wentworth

No, I wouldn't waste my time with cap rate. It has little to no relevance in analyzing 1-4 unit properties. It is especially irrelevant in determining value (i.e. ARV). Use CoC and/or IRR.

Cheers... Immanuel