on 24-Feb-2018 (Sat)

opening and closing tags, which are <?php ?>

the cap rate equation is: Cap Rate = Net Operating Income (NOI) /Value

To determine the value of the property, we just switch around the formula like this: Value = NOI Cap /Rate

The type of property you are buying (A, B, C, or D) will determine what cap rate you use.

A simple definition of cap rate is the rate of return you expect to get on your investment.

If you were buying a property that was newer and in a good area, this would be a less risky property to own, so you would expect to get a lower return.

If you’re interested in a property in a tough area and it had a lot of deferred maintenance, you should expect to get a higher return.

Properties are categorized with letter grades. A’s are good and D’s are tough.

A properties were usually built within the last 10 years.

Your biggest competition in A properties is the single-family home market.

B properties were built within the last 20 years. Tenants are a mix of white-collar and blue-collar workers. This is where you’ll start to see a little deferred maintenance on the property if it has not been taken care of properly.

Many white- collar workers live here.

C properties were built within the last 30 years. Units are filled mostly with blue-collar workers and tenants with Section 8 (subsidized housing) or other housing assistance.

one of my criteria for Section 8 tenants is that they have a job. This shows me they are responsible. Having a job also means they will make their part of the rent payment, and the government will pay the rest.

D properties were built more than 30 years ago. They are usually in bad areas, filled with very bad tenants. You may findaDproperty inaCorBarea;ifthis is the case, you can probably reposition that property toaCoraB.

If the D property is in a lousy area, avoid it.

you can make just as much money buying better quality properties in better areas.

The rule of thumb for cap rates for each of these property types is as follows: A: 6–7 B: 8–9 C: 10–11 D: 12+

As the cap rate lowers, the property becomes more expensive.

Analyzing Your First Deal

It’s a 75-unit building.

the income is $772,000 a year and expenses run $370,000 a year.

Another important rule of thumb to determine value. It deals with expenses. Expenses on a 2-unit to 20-unit property will run about 35 to 40 percent of income. Expenses on larger properties will run about

50 percent of income. These numbers assume that tenants are paying the utilities.

do a quick scan of the expenses: Are they at least 50 percent of the income? = 48% Expense Ratio $370,000 in Expenses $772,000 in Income This one’s a little low at 48 percent. If you want to be a conservative investor, then assume expenses will be a little higher, as in 50 percent.

You’ll often see the expense figure come in much lower than the rule of thumb. When this happens, do not just assume it’s a great deal and go with the lower numbers. Instead, increase the figure to 50 percent and then do your calculations.

when the figures come in lower than the rule of thumb, it means one of three things—all of them bad: 1. The seller is not doing regular repairs. 2. The seller doesn’t know the true expenses. 3. The seller is lying.

How to Analyze a Property for Profit 117 50 percent of income. These numbers assume that tenants are paying the utilities. Simply do a quick scan of the expenses: Are they at least 50 percent of the income? = 48% Expense Ratio $370,000 in Expenses $772,000 in Income This one’s a little low at 48 percent. If you want to be a conservative investor, then assume expenses will be a little higher, as in 50 percent. You’ll often see the expense figure come in much lower than the rule of thumb. When this happens, do not just assume it’s a great deal and go with the lower numbers. Instead, increase the figure to 50 percent and then do your calculations. Why? Because when the figures come in lower than the rule of thumb, it means one of three things—all of them bad: 1. The seller is not doing regular repairs. 2. The seller doesn’t know the true expenses. 3. The seller is lying. It’s usually explanation number one, that the seller has been deferring the repair and maintenance.

If you’re going to be successful at repositioning such a property, you’ll have to spend more to make those repairs the first year and catch up.

It may not be one major repair, but a lot of little ones. Still, they can really add up and deplete your cash flow.

It could be that the seller is a lousy recordkeeper, and actually does not know the true expense picture. Believe it or not, many investors don’t even know whether they’re making a profit.

Then there are the liars. They know the property value is deter- mined by the income and expenses. If they can show lower expenses, some of these desperate owners will do it

The seller may even be adamant that the property is running at the lower expense level. In this situation, ask for copies of all previous invoices. If he says he doesn’t have them, ask for permission to contact the vendors to get copies of invoices for the last two years.

You could even ask to see last year’s bank reconciliation to verify who was paid and when. The bottom line is you know the property can’t be run that cheaply. Do your numbers based on the higher expenses, and make any offers based on those more conservative numbers.

In a formulation of the calculus based on limits, the notation is to be understood as an operator that takes a function as an input and gives a number, the area, as an output. The terminating differential, dx , is not a number, and is not being multiplied by f(x) , although, serving as a reminder of the Δx limit definition, it can be treated as such in symbolic manipulations of the integral. Formally, the differential dx indicates the variable over which the function is integrated and serves as a closing bracket for the integration operator.

The unspecified constant C present in the indefinite integral or antiderivative is known as the constant of integration.

The definite integral is an operator that inputs a function and outputs a number

the antiderivative of a given function is actually a family of functions differing only by a constant.

The fundamental theorem provides an algebraic method of computing many definite integrals—without performing limit processes—by finding formulas for antiderivatives.

Formally, the differential dx indicates the variable over which the function is integrated and serves as a closing bracket for the integration operator.