All Forum Posts by: Mark H. Porter

@Dennis L.

Hi Dennis, yeah, I think you’re using this incorrectly.  A Return on Investment calculation should be a snapshot taken on the beginning of the investment to compare it to others.  It subtracts the beginning value from the final value 

Say you paid $500k for a property and sold it for $1M. You'd make $500k on the deal and the ROI would be $500k (net return)/$500k (initial investment) = 1 * 100 = 100% return in investment.

One major problem with this is it doesn’t care how long it took to get that return.  It’s a big difference if it took you 20 years compared to five.

What you’re looking at is Return on Assets - the ratio of net income on the value of the asset held.  To increase this, you either increase the net income or devalue the asset.  The decision is either increase rents (or decrease expenses) to increase net income or sell the asset and instead buy an asset that will generate a greater return.

My advice to you? As you are not even 50 I would not be satisfied with a 4.5 - 5.0% return of a DST. You should think more towards increasing your cash flow rather than being satisfied with a return you will live with for 7-10 years (normal DST duration).

@Dave Foster

My apologies, Dave, I was calling you out as the recommended QI for the original poster, @Dennis L..

the question regarding ROI, was for him, not you.

Thanks for Handling my last two 1031’s!

@Dennis L.

DST - Mark Creasin with Emerson Equity

QI - @Dave Foster

my question for you, what does the value of the appreciated property have to do with ROI? ROI is just return/investment.

@Stephen Heleniak I hope it works out well for you

@Mel Park Mel, the current numbers were looked at as well as the land/location.  I’m at a signalized intersection, 2 acres, with 50,000+ cars per day going through.  The McDonald’s next door is considered second stage since I have the corner and their customers either pass behind my building or use my right of way between the lots.

In other words, I researched the worst-case scenario and still decided to go with it due to change of use possibilities.

@Mel Park Mel, my last deal was a Walgreens that I got financed at 3.25, 20% down, 25 year amortized through coastal Carolina national bank.  That was in February. I’ve never seen a 30-year  amortization on a commercial property.

Be cautious with dollar stores in general.  There is risk to the demographic areas they primarily go into so the banks won’t give you the same terms as a pharmacy or restaurant with a drive up.

Cap rates are inversely related to lease term and quality of the tenant. The longer the remaining term in the lease, the less risk, hence a lower cap rate. The higher cap rates can be found, you just have to be willing to look outside your geography and comfort zone. for instance, I did a 6.25% cap rate on the remaining money left over from the Walgreens deal with a DST.

Best of luck - 

Stephen, contact John Wright with Wright McCoy in Anderson, SC.  Third generation commercial broker and he knows the area very well.  Pass him my name and he may be able to guide you in the right direction.

$1.2MM gives you $4.8MM in buying power.

You may want to stay away from any restaurants that don’t have a drivethrough.  Many banks will tell you the same.

You also may consider pharmacies like I did.

You’ll have ST (Walgreens, cvs, jiffy lube) and MT (small strip malls) to choose from on the retail side.  The newer the building, or longer the leases, the lower the caps.

The 4-5% cap will get you nice NNN properties that require minimal Management. To get into the 6-8% caps you'll be absorbing risk of lease renewals coming up as well as maybe deferred maintenance needing to get taken care of (NN, not NNN).

As @Jay Faulkenberry says, Myrtle Beach has been very good to many people. If you have experience in STR, you have a leg up on many inexperienced investors just buying things with terrible numbers. Many, or most, don't buy on established cash flows but instead just have the real estate "sparkle" that so many have right now.

Quick note on terminology. NOI, or Operating Income minus Operating Expenses, NEVER includes either debt service or estimated capital expenses. That's because these are not Operational Expenses!

Joe, you need to learn what is ROE and how it is calculated, cap rates and where they come from, estimating capital expenses, square footage revenue and comparisons, the best structures for a NNN, and many others. A good commercial broker can handle these for you. You have a lot of money at risk.