All Forum Posts by: Patrick Philip

I have never heard of commercial "values" being determined by cap rate. That's one of the items people look at, but comps (if available), NOI, CoC return, all have far greater influence over the value someone will pay.

@Patrick Philip The 4% is a conservative long term view nationally.  2019 the national average was 7.9% and many areas were either higher or lower.  This has nothing to do with renovations to increase rent, this is the natural gain attributed to a growing economy.

The others have already hit on several of the things I would say. But you're using an example of investing at an institutional level. When you have 10s or 100s of millions of dollars that you need to get a return on your options are more limited than if you're an average investor trying to create $10,000/month in passive income (to throw out an arbitrary number that I hear used frequently). 

Investing in real estate at the individual level is a bit more esoteric (which leads to market inefficiencies) and allows you more control over the asset. To use a very simple example, for one of my house hacks (that I'm in currently) I put about $10k down and I'm getting nearly a 60% COC return, the loan has been amortized nearly 14-15k and it's appreciated $60k in 2 years. This deal exemplifies what I love about real estate, it's a flexible asset that can be manipulated to accelerate wealth building at an astronomical rate if you're willing to get creative and use your brain. 

Now, if I had 10 million that I needed to get a return on I'd have to settle for much smaller returns - like the example you referenced in your original post.

I also saw you mentioned development, I'm involved in building new homes too and that is offering phenomenal returns for the time being but I don't expect that to last forever. 
 

 Can I ask how you put down just $10k on a house hack? 

Why do you think home building won't work in the future?

@Patrick Philip Have you considered that if you put $10,000 into the stock market and get 10% return each year that it would be an awesome return? Lop on top of that tax savings of paying no taxes on that money, and then throw on appreciation...that you can use to pull out as a line of credit or a cash out refinance. None of this exists with a stock market investment. 

They’re Before-tax cash flowing $3M on a $30M investment.  Plus getting appreciation of, say, 4% on the total property value.  I don’t see a problem with that.

This amounts to loan payments of $7,058,107.68 per year. This will make their effective income = $3,041,892.32.  Their 20% down payment would have been $30,800,000. This means that it will take over 10 years for them to see their initial investment back.

They're making about 10% cash-cash return that is tax-sheltered today and prob increase in the future.  Plus they benefit from price appreciation upon sale.

Find something better.