All Forum Posts by: Josh Jacobsen

I worked at Menards for almost 3 years, and miss the store every time I shop at depot or lowes. Menards is very reasonably priced, especially on Menards brand goods - master force, tool shop (gross), mastercraft, crest line, etc. The trick for double dipping sales is to pay attention to the 11% sale, especially if you're shopping for kitchens and windows. Regularly Jeldwen and Schrock overlap the 11% rebate sale by one day. I saved a guy a bundle once because he got the volume price on windows, backed with the 11% rebate and came out something like 27% ahead.

I just googled "how to buy parking spaces in Boston", and found 11 spaces for sale. They cost a pretty penny.

I didn't realize there are companies that track that information. How do you use the publication you linked to as a tool?

Why is there so much variance in cap rate estimates? If you estimated a cap rate, and Warren Buffet estimated a cap rate on the same building, you'd likely come up with two different cap rates. Why?

I appreciate that Bob. To answer your question about where I picked up the term "net profit" as opposed to "net operating income", I adapted my language to what had been accepted in the thread. Typing from my phone, "profit" became an easier use of letters than "operating income". My mistake. 

I do appreciate this post as it pertains to what I've been thinking about lately. 

In an income approach a property will be valued by the price the market is willing to pay for NOI. If you pay a million bucks for this property and the cap rate comps are 12% then you OVERPAID by $166,667! Any profit went to the more sophisticated seller. Plus you pissed off all the other market participants because now your "fake crap rate" is out there as a comp. You will be the talk of the local REIA.

The correct way to utilize a cap rate in real estate is to determine your cap rate comps from similar CLOSED sales. Throw out the ones from idjits and analyze the NOI on each comp. Use the appropriate comp against YOUR NOI to determine the approximate market value,

 If you are game, I'm interested in hearing your approach to solving NOI.

Bob Bowling I appreciate the opportunity to contribute as much as the next guy. I'm not sure why you chose me to quiz. If you'd like we can move this conversation to private message. I wish you would have done so previously, rather than bate me into embarrassing myself in a public forum.

Bob Bowling , that number represents the cap rate once it's been multiplied by %100. I'm not sure that's the question you're asking me though, so I'll keep going. The cap rate is a scale that can be used to evaluate the value of your investment dollars. If your net profit on an investment is $1, and your investment is valued at $100, then your cap rate is a solid 1%. If that same dollar can be earned on an investment valued at $50, your cap rate is now 2%. There are some that would argue a 2% return is far better than a 1% return on their investment per year, and that from an investment standpoint the $50 item may be the better buy. On a larger scale, if you're net profit is $20k, and a property costs $1.4m, the cap rate being 1.4%, you may be able to find a much cheaper way to gain $20k per year. Maybe on a property that costs $200k, or has a cap rate of 10%. Now Bob, I know you know this. Why do you ask? There is also an element of time in play here. A cap rate divided into 100% represents how many years it takes to gain your investment back. 100% divided by 5% equals 20 years to see your money back.

Bob Bowling , that number represents the cap rate once it's been multiplied by %100. I'm not sure that's the question you're asking me though, so I'll keep going. The cap rate is a scale that can be used to evaluate the value of your investment dollars. If your net profit on an investment is $1, and your investment is valued at $100, then your cap rate is a solid 1%. If that same dollar can be earned on an investment valued at $50, your cap rate is now 2%. There are some that would argue a 2% return is far better than a 1% return on their investment per year, and that from an investment standpoint the $50 item may be the better buy. On a larger scale, if you're net profit is $20k, and a property costs $1.4m, the cap rate being 1.4%, you may be able to find a much cheaper way to gain $20k per year. Maybe on a property that costs $200k, or has a cap rate of 10%. Now Bob, I know you know this. Why do you ask?

Sure. The cap rate is the division of your net operating income by the value of your property. If you have a net operating income of $100k, and your property is a million bucks, your cap rate is 10%. 

Do you know how to estimate your net operating income?

@Brian Burke   You've raised some questions that I'm not sure of the answers to. The county website refers to the 3 methods of appraisal for valuating taxes, payments due in April and October, and reviews once a year. At present, I can only assume taxes will go up after I buy. I'm under the impression that the rents are slightly under market value, and WA is a very liberal state, so I'm anticipating minimum wage increases statewide (I had that thought before I read Brandon's article). If rents catch up to market, and minimum wage increases, the valuation based on the income method would have to increase the taxes on the property, yes? However, if I were to buy under the original purchase price of the property, and nothing else changes, would the valuation in the eyes of the county merit a change?

It is a "21" unit building, although one of the units is being used as an office - so they're only renting 20, with 6 "light remodels" in the last 12 months. 

You're right about the assumption on the loan. I don't see any viable reason to assume that one either. I haven't put much thought into partnering, so please forgive my ignorance, If I were to bring investors to the table with me - what kind of funding would they need to be able to produce?

@Bill Gulley You don't scare me, and I don't know if you golf, but you can come too. 

@Brandon Turner Thank you for the kind words. I had never heard of a triple net option before and the the concept went right over my head. I'd like to hear more about it. 

@Ben Leybovich Ouch. 

@Bill Gulley One of the two listing agents backed out of the meeting today, leaving the original contact to call me and let me know that we would need to postpone. I requested the information he had to be emailed to me, which he did. 

The existing loan on the property has $675k left in principle at 6% interest over a 30 year term, with a balloon due in 2017. His P and I payment is roughly $3375 per month. His ask is at $1.4m, so if he were to cover the difference after an assumption he'd need to carry a note around $725k. The rent roll is $14142 per month, and the property is 100% occupied right now. 

Scheduled Rent: $169,704

2014 Tax: $21,061

2014 Insurance: $3,101

Vacancy: $8486

Property Management: $11,880

Cap Ex: $16,971

WSG: $19,087

---------------------------

NOI: $89,118

The people in my corner say that this property is too expensive, and I agree. P and I would eat that profit margin and leave nothing. For this property to make sense the seller would need to come down almost half a million. I would look to buy this one in the neighborhood of $930k-$1050k, yes?