All Forum Posts by: Edward Peugh

@Frank Mirando I am sure lots of folks will disagree, but I always have substantially more luck going to see these types of leads in person.  

If I were trying to work this type of list I would group the properties by area and then spend two hours at a time trying to stop by a given set of properties.

This will set you apart from everyone else who are approaching this same lead.

@Jeremy Shepherd I think the difference here is that the local bank was going to make those loans as "Portfolio Loans", so they would not be selling those loans to other investors.

Thanks for the explanation @Wes Brand

@Wes Brand Great point about appreciation!  (Which of course is not a myth..) 

I guess my approach has always been to buy the worst house in the best neighborhood..  (We will close in a couple of weeks with cashing out 85k from a short sale we purchased in 2010)

My challenge is that I am a formula based guy (see above), and I am not sure how to write this appreciation into my model.  This is additionally compounded by the fact that it's only a guess.. 

What reference would you use to watch this type of inflation?

@Account Closed Could you direct me to a reference that more clearly outlines which expenses are removed for NOI? I.E. What is meant by only "Operating" expenses (I have been writing the formula that way for years now.. Doesn't mean I have been right for years.... Just means I have reviewed this with a lot of folks and have never discussed this distinction... :/ )

Bob, Continuing on your point about Cap Rate, I do understand that Cap rates vary by market, and are reflective of expected risk in a given market, but could you clarify how a Cap Rate is different from a "Return"?

@Jameson Sullivan BP is a great resource for locating deals.  I also recommend local networking through your local REIAs, Meetups, and Investment clubs.  Also Social media sites can be pretty powerful too.  I primarily operate in the Charlotte Market and I think we have at least 4 or five different investor focused groups that are helpful for networking.

Good Luck!

Ed

@Account Closed When evaluating and comparing rental properties you really want to understand two things.

First, how much cash flow will I generate? This is measure is called Net Operating Income.This is all Income minus All Expenses.

So in my analysis it looks something like this:

Annual Rent (Monthly rent * 12) – (Taxes, Insurance, Maintenance, Management, and Vacancy Loss)

Taxes and Insurance are often firm annual figures.

Maintenance, Management are often stated as a percent of Annual rent (In most cases I use 10% and 8% respectively).

Vacancy Loss is how to take vacancy into account in NOI.I often will use 5% of annual rent for Vacancy Loss.

However NOI is only half the story.

Second, one wants to understand how efficiently we are generating this cash flow compared to other investments. This measurement is Capitalization Rate (commonly called Cap Rate). The Cap Rate is calculated by dividing the NOI by the purchase price (including expected repairs).

Take any given investor who says I want to generate an NOI of $10,000.This is a good goal, but it is a little empty.As it doesn't take into account what is being invested to reach that $10,000.Intuitively, we understand that if I am making $10,000 on an investment of $100,000 (Cap Rate 10%) this is better than the same return on an investment of $200,000 (Cap Rate 5%).

Dividing the number 1 by Cap Rate will offer the time period in number of years to pay of the property.

In my market we see 8-10% Cap Rates as attractive investments, which imply a payoff period of 10-12.5 years.

(For sure there are other approaches, but this one has served me pretty well.It should be noted that I generally don’t take any appreciation into account for my modeling, as I don’t have much interest in selling over the next two decades.Of course there will be some, but I don’t make these types of decisions with any thought of that.)

Happy to hear other points of view.

Ed

There are limits on the number of conventional individual loans (I believe the number is 10).

@Chris Mason can probably give you a little clarity on traditional financing