All Forum Posts by: Winston Parks

Hi @James W., In your example, your ROI is 4.8%, but the cap rate is not 4.8%. The market determines the cap rate and you cannot deduct debt service as operating expenses as it is a debt expense. Imagine if you walked in with $1M cash and bought a property that earns you $80k per year. It gives you an 8% return on investment, ROI, and in the case you can say that that property was traded at an 8% cap. Your ROI on the above example is 4.8%, but that is only due to your interest rates, loan type, etc. Hope this helps.

Thanks guys and gals! @Account Closed

@Quin Weidner you need to know the lease inside and out. Also, if you have no experience then work with a seasoned broker on your first few deals to ask questions about the lease, current market conditions, etc. If you do this, work with someone you hire and not the listing broker. Regarding the CAP, basically what @Account Closed said regarding NOI vs CAP is one way. We look at what the Gross Operating Income (annually) divided by the market CAP and that gives us the price. In a Triple Net scenario then your NOI and GOI should be similar as your operation costs should be minimal. Research what the rates are going for in your area (Use Loopnet as a resource) and take into account size, lease terms (triple net?), available properties in the surrounding area, etc. Know what the market is asking for similar properties like Bob said. Do not think about what the CAP will be after the rent increases as you are buying it today. So, $6,500 * 12 = $78,000 / 8%mkt cap = $975,000 asking price.

Hey BP,

Is anyone familiar with any financial analysis tools that help analyze multifamily deals? I know BP has its calculators and I have seen a few online excel classes with a focus on real estate, but I am curious if anyone can direct me to their "tried and true" resources? I appreciate any input received.

Best,

Winston

Hi @Paul Corder and welcome to BP. The forums here are a great resource to get feedback and learn. I am a developer and work with your colleagues throughout TN and KY. Feel free to ask anything you would like.

Best,

Apparently I cannot post contact info here.... PM?

Hey @Mark Douglas, I have a realtor who owns rentals and is an active agent in the Nashville area. If you would like, I could pass him your information to reach out.

Hi @Kathleen Salinas I have not heard of it, but that doesn't mean it cannot be done. 

@Jimmy Klein thank you for helping me understand why each valuation metric is important. Do you use any valuation tools that are available online or elsewhere?

@Vivek P. +1 for the good article!

Thanks everyone for the input!

@Dan Cho, thank you for the input and recommending Mr. Bhakta.  It seems like the common answer here is a multiplier of 2.5-5x depending on market, etc. Your examples were great and you have to start somewhere!

@Roy Oliphant, I am interested in how to value a motel business because I think the motel operations are not very good thus im thinking I may be able to get a great deal if purchasing the business. I will definitely do the calculations on the after conversion value vs conversion costs. Im thinking I can get a better deal this way versus trying to buy the "real estate".

@Account Closed this is exactly how I plan on getting what I plan on paying for the property. The owner is not willing to show me any financial documents on the property, yet. I would typically walk away; however, I want to convert the property so it really does not matter to me what the business is worth (unless I can get a deal). Thank you very much and this is the route I will use as well as try to get the actual "value" of the business.