All Forum Posts by: Tim Johnson

The cap rate (or capitalization rate) is the NOI (net operating income) divided by the purchase price.

While cap rate can give you a hint toward your ROI, it is not generally used to estimate your ROI on any given investment or time frame. Instead, since it leaves out the financing (1 huge variable in your ROI) it is used primarily to make quick comparisons between properties.

It's important to understand average cap rates in any given area, but from there one needs to dig in and add your financing variables, appreciation, and depreciation (tax gain or loss) to get to a more accurate ROI.

And yes, never take the seller's cap rate as truth.... do your own math.

Some simple but obvious checkpoints:

Is it priced reasonably enough to cash flow from the start? 

What is the supply and demand in that community for rental units? (maybe more important than trying to find comps)

Does the college offer a pretty steady stream of tenants? Budgeting by the room would be great.

When you run the numbers, does it meet your criteria? 

Sounds like good potential...... Best of luck....

Thanks for your good thoughts Kohei. The question you ask will vary for each investor. Some folks had great mentors around them from an early age and fall into REI naturally. Others have a high-risk tolerance and are anxious to get started but have absolutely no ability to live frugally, save carefully, or practice any form of delayed gratification. Still others, experiencing analysis paralysis, need to overcome fear, anxiety, and hesitancy to even jump into that first deal. Fortunately, there's room for all of us if we're willing to learn from others, network with others, and stick to a plan.

Congratulations for reaching that first goal "without much fanfare"! Who knows, that second goal may not need much fanfare either. Who says one of the stages needs to be hard? Best wishes...

First of all, congrats for being in such an enviable position! Capital is usually what most of us are struggling to get. Your possibilities here are endless. 

Research your markets well and choose one (or multiple) to invest in. Use your liquid cash to put down payments on 5 properties (not all at once!...take some time), making sure the first one is a duplex where you want to live so that you can house-hack. You'll need 20% down on SFRs and probably 25% down on the duplex - do all that with about 200k, leaving you some margin. Get that cash flow going and steady before you expand further. (BRRRR always sounds fun.... but it requires a very specific skillset and lots of hands-on involvement - not for everyone.) As you gain insight and reach that 4K goal....stay in touch here with the rest of us so that we can learn from your experience too. Best wishes...

Well....you've reached BiggerPockets. It's hard to imagine a spot with more resources for real estate investing than right here - everything you've asked for: YouTube videos, books, blogs, podcasts, forums - why not try the list of resources on the right-hand side of the page to start with? Welcome! ...and best wishes in your endeavors.