All Forum Posts by: Robin Simon

 Agree with this advice - always make sure to disclose and run by this additional loan (psuedo-gift) with the lender, don't wait until the end for this "surprise"!

from a twitter thread:

The cap rate serves to price the risk of the NOI the asset is producing and producing a value accordingly. Cap Rates are determined for a specific property through looking at similar properties' cap rates on recent sales (comps)

Cap (Capitalization) Rate is one of the most important concepts to understand in real estate investing BUT make sure you understand its applicability to the asset class - not always relevant, especially with SFRs

Cap Rate is a fairly straightfoward metric used to determine value of a real estate asset through the "Income Capitalization Approach" to determining value. Also is effective the "yield"

Formula: Net Operating Income (NOI) / Value = Cap Rate
Alternatively: NOI / Cap Rate = Value

Example
$100,000 NOI
$1,000,000 Value
Cap Rate = 10% ($100,000 / $1,000,000)
This million dollar property has a cap rate or "yields" 10% annual returns in the form of a $100,000 net operating income. Similar to a $1M bond that yields 10% interest

Generally, cap rate refers to how "expensive" your real estate cash flows are, the lower the cap rate, the LESS risky the cash flows are. This is because every real estate asset kicking off $100k NOI is not equal and worth the same thing.

For example - would buy a Class A multifamily yielding $100k annual NOI in a tier one city or a aging strip center in a declining market also yielding $100k annual NOI? Which NOI is safer long-term? Which property will likely appreciate vs. lose value?

You'd be crazy to value these properties the same even though they produce the same $100k NOI

This is where cap rates come into play:

The multifamily may have a 3% cap & be valued at 100k/3% = $3,333,333 while the strip center may have a 12% cap & be valued at 100k/12% = $833,333

Cap Rate is so important here because the market (buyers) are the ultimate arbiter of value in real estate and the buyers of commercial and multifamily buyers are INVESTORS always and primarily looking to buy for cash flow and ROI potential. A very important wrinkle for SFRs (single family residences) is that buyers are primarily NOT investors, but homebuyers (stark distinction with commercial and multifamily). Thus how the market values SFRs is DIFFERENT since most buyers aren't strictly looking at cash flow/ROI.
MOST SFR buyers will buy for other reasons than if the property will "cash flow" - if you are a family buying a home - do you care about lifestyle, space for the family, your commute etc. or what it would theoretically rent out at? Buyers are focused on other things.
Thus while Cap Rate (yield) is the overwhelming driving factor of valuation on commercial/multifamily properties its not as applicable or important for SFRs EVEN IF YOU ARE BUYING AS AN INVESTMENT (because the market, not you, determine the value).  Therefore, 
for SFRs, the overwhelming driver of value is sales comps rather than income capitalization. The Cap Rate can be a relevant factor in your investment decision, but important to remember its not really the right valuation tool for this asset class.

 Its going to be very important to have those reserves for qualifying for loans as you scale so I would say the answer is Yes But you can engage in some cash management strategies where you really only need to have that cash in reserves at the point of getting a new loan, so at other times you can draw it down as needed

 You should definitely take the extra step to put something in writing for an official loan/lien and contract.  These things can get messy even with the best intentions and relationships, much easier to work through if you have something legal and official put together

Welcome - sounds like you are on a great track.  I'm working on creating a curriculum of books to introduce recent college grads to real estate investing, would you recommend "The Book on Rental Property Investing" as a good intro read for someone like that?

There are lots of good conferences, important to know your niche though, as some are focused on short term rentals, some are more focused on BRRRR and some are higher-level business focused etc. Here are some recommendations as we attend and track a lot of conferences:

Short Term Rentals

IMN STR Forum (Austin June 2022, next one Miami January 2023)

STR Wealth Conference (Nashville June 2022, next one Nashville March 2023)

STR Nation Meetups (just had one in Las Vegas this past weekend)

General SFR Investing

IMN SFR East / West (Miami Beach May 2022, next one Scottsdale December 2022)

BPCON 

ThinkRealty Conferences (Just had Tampa August 2022, next Houston March 2023)

It probably depends on a a few factors - but high level, if you qualify for conventional financing (DTI, etc.) it probably makes sense to do it. If you have any issues with DTI qualification or are hitting limits on conventional, then a commercial "DSCR" loan may be the better option, even if rates will be a tad higher. Other advantages are that you can borrow in an LLC (beneficial on a 4-unit property) and with partners if needed

You can absolutely get a 30-year fixed product instead of an ARM. If you want to get a little bit of risk off the table with the fixed rate, it probably makes sense as the ARM product right now isn't even giving that much better relief in rates

You can sort the forums by location, so if you are pretty focused on building relationships with people in Central Texas, I would start there and contribute to threads tagged with a San Antonio (or potentially Austin, Houston etc) locations.  BPCON also just happened, but would also strongly recommend attending next years!