All Forum Posts by: Josephine Wilson

@Marian Smith No, I haven't done that, but sounds like a good idea. I figured investing in a low cap rate property would result in very little taxable income since so much of the rental income would be knocked out by depreciation. But I have not actually run the numbers and appreciate the suggestion. 

@Russell Brazil What I'm reading online says NOI does not include financing, whereas cash flow does. So a negative cash flow is possible with any cap rate, depending on the financing terms. I used standard financing that would be available to me as a new investor in the calculation, i.e. conventional 30-year fixed mortgage, 20% down, 4% APR, although even this may be overly rosy.

@Darius Ogloza WorldComm - that takes me back! Enron anyone? Waste Management?!

I appreciate this analogy. I guess it depends on your immediate goals. Are you looking for immediate cash flow to fund future buys or are you playing the long game, looking at appreciation over a 10 year period, as you note? Growth vs value investing, except you do it with the bank's money.

One issue I see with being a value investor here is that your debt to income ratio would become unfavorable quickly. After a few properties, you're out of the game.

@Andrey Y. Definitely not trying to teach anything - I am a new investor!

I made a spreadsheet and put 20 properties from my target area into it. The cap rate is calculated as follows:

Cap rate = ((Estimated annual rent x 0.95 occupancy rate - P&I - taxes - maintenance - insurance)/sale price

My estimated rent is calculated from data I collected online (Craigslist, Zumper, Estately) on the rents of studios, 1BR-4BR units my target neighborhoods. I averaged the rents and calculate the estimated rent for a given property based on the composition of units (a duplex with one studio and a 2BR would have a different estimated rent than a triplex of three 1BR). 

The P&I is calculated with the PMT function in Excel and matches the output of online mortgage calculators. Maintenance is estimated at 1% of sale price. Insurance is estimated at $1000/year for every property. Happy to share the spreadsheet with you!

Granted there are a lot of estimates here, but when I do identify a property, it seems like it will be easy enough to calculate the cap rate based on actual numbers. 

The low cap rates in my target neighborhoods suggest to me that these are very safe investments, so safe that buyers are willing to forgo high yields in the first few years.

So no, I haven't gotten it from a podcast or a salesman. I would love to see cap rate sales comps, but being a newbie, I don't know where to find that information. 

I'm lining up financing for my first REI. I talked to my usual bank (Chase) and they said 4.3% APR and 25% down. I'm thinking that shopping around I should be able to get a better rate. Thoughts?

@Account Closed LOL! You really think that's what it is? Just people who don't know better. Woah. I need to take that in. 

157th a B?? No way, really? It was 2009. It was a stunning pre-war building - high ceilings, crown molding, hardwood floors. It will be a beautiful place some day. After that one tenant moves out, that is. 

@Stephen E. Good point. I lived in an apartment building in Washington Heights in NYC. 157th St. Sketchy but not too bad, maybe a C, I'm thinking. The tenants above me threw their dirty diapers out the window for the super to clean up. Some landed on my fire escape and I had to deal with them. It's that kind of tenant I want to avoid. 

So does a tenant in a B have decent credit?

@Stephen E. Yup, you guys are opening my eyes to that. I don't want to be a slum lord, so that's why I was saying A. But A/B sounds good. Not sure I totally understand what a B would be, but pretty sure I don't want a C/D. 

I'll take a look at some adjacent areas. It gets into meth addict territory pretty quick but there are some nicer enclaves. 

@Daniel Trimble That's cool. Good plan to renovate one by one and keep the others occupied. What neighborhood is it in? Were you looking for a while?