WOW!!! As an uninformed investor, I doubted how well off I was. This cleared everything up and now I feel empowered to continue investing. I can't thank you enough for this video.🎉
Long term you're going to want to measure in inflation. Plan for block expenses - save for replacement of major items like repaving, boiler, roof, painting, etc.
Great - It's not only the formula but its concept and limitation are presented outstandingly. Appreciate and thanks for making this wonderful educational video. Regards
I think it is also wise to compare your Net operating income with other comparable properties in the locality, reason being: many factors can influence a higher net operating income like the age of your property, systems (Heating & ventilation systems), and property management. Thank you for the lesson 🙏🏿🙏🏿🙏🏿
Awesome video! Just had a quick question in minute 15:50 when you were explaining about the final increase in equity value of $56.000. Based on the math the total price of the property would increase which we know, however wouldn't that decrease the cap rate then(cap rate: NOI / total value)? Or would the NOI also change(perhaps increase?) because of the rehab done on the property? Sorry if this seems to be a very obvious answer lol
Cap rate will be calculated like a future ROI on an Initial investment. Means its calculated on the Purchase price throughout, and not the increased value of an asset. Hope that helps!
how would you then account for the extra work it would take to occupy and lease up the building? Would you still use the “market” cap” rate to value the asset on the as-stabilized NOI stream? Would that not result in you over paying for a vacant building as if it were fully leased at market?
Wow your video is the best on the Internet. I have zero experience in real estate but I am looking to learn more about it. So far I can follow everything you are explaining. Thank you for sharing your knowledge.
What's the formula for figuring out cap rate for a neighborhood? Do we add the most recent sales and then do we compare it to the purchase price of the new house?
@@SageRealEstate So if you are in an 8 cap market then ALL comparable properties are at about an 8 cap. Again, what are you comparing, an 8 cap to an 8 cap? LOL
Maybe I’m over thinking this a bit. But I’m still a little confused on how cap rates get applied. So let’s say I’m eying a deal that by my numbers and fancy excel spreadsheet calculations, has a 12% cap rate upon purchase. The MARKET cap rate is 8%. If I want to pull equity out through a refi…will the value be based on the market cap of 8% or will it be based on my actual accounting numbers after I’ve been in the deal for a year or two?
Love the video content! Great job explaining the material, which made it easy to grasp and understand. I am a newbie to real estate investing, I haven't acquired any investment properties at the time in my real estate career, but I am very excited and know that my success is inevitable, reason being is that I really love real estate and most of all I love numbers. I feel that I have awakened my purpose in life. God Bless!
The only thing im not understanding is the "value" number - with the example of $770,000 , is that the number that you'd want to sell it for ? Meaning if you want to exit at that cap rate you must sell for the value number or better? Im not getting the significance of that snapshot value number
Thank you for the explanation but it sounds quite unrealistic in Southern California. Because properties are overpriced out there. It's almost impossible.
so in the last example could you extrapolate the conclusion that an improvement to the property that you pay out of pocket $56k is "break-even" only if you can increase monthly rent by $400 because of it?
@@SageRealEstate Of course! In the section of the video titled "How Increasing Rents Affects Value", you give an example where doing renovations to a property allows you to increase rent by $400 per month, and as a result the value of the house increased by $56,000 (assuming a fixed cap rate of 6%). My question relates to the costs of the renovation, and in particular to the returns on the renovation. Almost as if it was a separate investment. If the cost of the renovation that allowed the rent to increase to $400/pm were exactly $56,000, then would that mean that you have made a "zero-sum" operation? 0% return, break-even as I said in the first question. I don't know how to phrase it differently. The logic behind this is that if I need to pay $56k for a renovation that will increase the value of my property by exactly the same amount, then I don't think the renovation was worth the time, effort and risk, especially if the property had to be vacant during the renovation. If instead the renovation costs only $30k, then I have made a $26k profit from the renovation. But maybe I am wrong because the assumption that the value of the property went up by $56k is based on the formula that uses a cap rate of 6%. So in theory it means that if I were to invest $56k in the renovation, I would get a return of 56,000*0.06= $3360 (just as stated in your video) of NOI per year. In this case, the hypothetical renovation of $56k would have a positive return, and the lower the invested amount the higher the return. So which one is it? If I were to spend $56k to renovate a property, which in turn would allow me to increase rent by $400 per month, would I break-even with my investment or should I rather invest it in something else? (let's ignore financing because that would introduce leveraging effects) I hope the question makes sense. and since I've already typed all of this out, thank you so so much for the amazing FREE content your guys provide! If I lived anywhere near Los Angeles I would definitely get in contact for an operation because you guys are true professionals! I watched other of your videos and the thing that I like the most about you guys is the long-term support you provide to buyers, even after the operation was concluded. Having a trusted professional that has reliable contacts in the industry is invaluable.
If i invest in a daycare center and be the NNN landlord only and not participant i the daycare operation. The NOI here is the NOI of the daycare business or the landlord’s NOI (I.e. pretty much just rent amount) ?
I have a question, when you increase rents the expenses increase too? I thought they stayed the same. If anyone can explain that would be great thank you
To find the market cap. You would need to find similar properties around the property you're considering and calculate what the cap rate is in that area from those closed sales. Or ask someone who is a real estate broker and understands cap rates.
@@SageRealEstate There is no reliable source for cap rate comps on properties less than 5 units. Without comps you can't use direct capitalization. But the question is why would you want to use an inferior valuation metric?
Hard to find anything over 5% cap rates for 2 or 3 family homes near big cities these days. Prices still too high and rent recession is due to happen as employment is at peak in 2023
Prices are still high nationally. Try focusing less on the cap rate and compare the income versus the mortgage. Smaller apartment buildings typically don't give off a high cap rate.
The operating expenses typically include things like property taxes, insurance, maintenance and repairs, utilities, and any other expenses related to the operation and maintenance of the property. These expenses do not include mortgage payments or other financing costs, as those are considered separate from the property's operating income and expenses. While payroll or salaries for any employees are an expense associated with the operation of the property, they are usually not included in the calculation of NOI. However, if the property has an on-site manager or staff whose salaries are directly related to the operation of the property, those expenses may be included in the calculation of operating expenses for the property.
“There’s no reason why you’d purchase at a cap rate lower than market” well not necessarily. Perhaps that property is under rented. Perhaps that property has lower risk.
EVERY property needs management… (yes you could do it yourself at no cost)…. but MOST property owners WANT IT therefore it should be a part the operating expenses👍
I recently encountered a multihome apartment building of 15 units do you have an email or phone number that i can reach out to you and look over the details of this deal
WOW!!! As an uninformed investor, I doubted how well off I was. This cleared everything up and now I feel empowered to continue investing. I can't thank you enough for this video.🎉
Glad it was helpful!
Thanks a lot for breaking down the CAP RATE and NOI - your explanation made it so much easier to grasp. Appreciate the clarity!
You're very welcome!
Wonderful explanation! Not just calculations but concepts!
Glad you enjoyed the video. Let me know if I can explain another real estate calculation.
Long term you're going to want to measure in inflation. Plan for block expenses - save for replacement of major items like repaving, boiler, roof, painting, etc.
I’ve learned more in 5 mins than most guys in a hour.
Thank you we have a new cap rate video coming out in the next two weeks. I hope it's as good as this one. ☝️
Great - It's not only the formula but its concept and limitation are presented outstandingly. Appreciate and thanks for making this wonderful educational video. Regards
Glad you liked it! Thanks for commenting.
Your videos deserve a lot more views I think they will grow in the near future
I think so too! This video clearly explains cap rate and NOI for me, thank you👍
great explanation. thank you!
Glad it was helpful!
Great. Teacher Or mentor Is a man who can touch your mind nice details scenario.
Yes, you are right
Very good. Clear explanations. I thank you
vac/ collection loss is a real variable needed on your list.. : )
The best video I’ve come across! Thank you!
Thanks Rick !!
Agree
Thank you for making it easy to understand!
Thanks Edith
Great explanation, my only question is how do you determine the taxes on the new purchase price
In California taxes should be 1.25% of purchase price.
I think it is also wise to compare your Net operating income with other comparable properties in the locality, reason being: many factors can influence a higher net operating income like the age of your property, systems (Heating & ventilation systems), and property management. Thank you for the lesson 🙏🏿🙏🏿🙏🏿
You are correct. ✅
Taxes means the yearly property taxes, not the taxes when you buy the property. Also include the vacancy rates in the deduction from the gross income.
It is excellent information !! GOD Bless you🙏🙏🙏🙏
So nice of you
Would it make sense to Capex a solar panel installation for an apartment complex and resell the electricity to each tenant?
Thanks so very much for sampling this piece of informations
Glad it was helpful!
Thank you for the explanation 😃
Thank you for following us
Very well explained. Thank you!
Glad it was helpful! I appreciate you tuning in.
Thx for using the white board to explain things, much appreciated!👍
Thanks Diane. We plan to use the whiteboard more. Comments like this reassure us.
Excellent video, enjoyed the easy explanations and TRIMUP
Glad you enjoyed it! Thanks for commenting !
Great explanation, thank you!
Great way of explanation, thank you!!!
You are welcome!
Awesome video! Just had a quick question in minute 15:50 when you were explaining about the final increase in equity value of $56.000. Based on the math the total price of the property would increase which we know, however wouldn't that decrease the cap rate then(cap rate: NOI / total value)? Or would the NOI also change(perhaps increase?) because of the rehab done on the property? Sorry if this seems to be a very obvious answer lol
Cap rate will be calculated like a future ROI on an Initial investment. Means its calculated on the Purchase price throughout, and not the increased value of an asset. Hope that helps!
Excellent video...How would you calculate the value if the building is NOT occupied...As in Vacant?
If the property is vacant, then I'm gonna determine what the market rents would be for the rentals and use that to come up with a cap rate.
how would you then account for the extra work it would take to occupy and lease up the building? Would you still use the “market” cap” rate to value the asset on the as-stabilized NOI stream? Would that not result in you over paying for a vacant building as if it were fully leased at market?
Wow your video is the best on the Internet. I have zero experience in real estate but I am looking to learn more about it. So far I can follow everything you are explaining. Thank you for sharing your knowledge.
Valuable content can't wait to buy my first property!
Thank you
Very well put together vid!
Thank you
Great video!! Thanks 💯
Glad you liked it!
Does the same formula apply when wholesaling apartments?
What's the formula for figuring out cap rate for a neighborhood? Do we add the most recent sales and then do we compare it to the purchase price of the new house?
Net operating income divided by sales price.
Thanks for sharing this knowledge ❤❤❤
So nice of you
How are you comparing properties on the market?
We are looking at both closed sales and active sales to get an accurate view of where cap rates are at.
@@SageRealEstate So if you are in an 8 cap market then ALL comparable properties are at about an 8 cap. Again, what are you comparing, an 8 cap to an 8 cap? LOL
Great video man
Maybe I’m over thinking this a bit. But I’m still a little confused on how cap rates get applied. So let’s say I’m eying a deal that by my numbers and fancy excel spreadsheet calculations, has a 12% cap rate upon purchase. The MARKET cap rate is 8%. If I want to pull equity out through a refi…will the value be based on the market cap of 8% or will it be based on my actual accounting numbers after I’ve been in the deal for a year or two?
If you're trying to refinance, the lender should use your income in and expenses for your property.
Thanks for this video. Very informative
Love the video content! Great job explaining the material, which made it easy to grasp and understand. I am a newbie to real estate investing, I haven't acquired any investment properties at the time in my real estate career, but I am very excited and know that my success is inevitable, reason being is that I really love real estate and most of all I love numbers. I feel that I have awakened my purpose in life. God Bless!
Awesome, thank you!
I have a duplex for sale
Great video, simple explanation, unlike some investors who click bait people. Thanks and keep up the great work!
Appreciate it!
The only thing im not understanding is the "value" number - with the example of $770,000 , is that the number that you'd want to sell it for ? Meaning if you want to exit at that cap rate you must sell for the value number or better? Im not getting the significance of that snapshot value number
I assume it's the price of the house before you buy it, or it's the price if you are a seller
great info my friend! thank you
Glad it was helpful!
Thank you for the explanation but it sounds quite unrealistic in Southern California. Because properties are overpriced out there. It's almost impossible.
Is it bad idea to buy 1bed1bath 4unit? Please advice. Thanks :)
I don't believe it's a bad idea. Nothing wrong with all one-bedrooms or all studios in a four Plex.
Higher cap rates are usually considered a riskier investment and a little lower is more stable.
Correct riskier investments will typically have a higher cap rate.
Great video! Thank you!
Thanks 🙏
🧠Thank You, enjoyable to learn!
Teaching style was explained well.
New to the channel.
Will checkout other videos.
Will share
Thanks and welcome
This is gold
Thank you 🙏
so in the last example could you extrapolate the conclusion that an improvement to the property that you pay out of pocket $56k is "break-even" only if you can increase monthly rent by $400 because of it?
Hello, thank you for commenting. Can you please ask your question again? I'm not certain that I understand it.
@@SageRealEstate Of course!
In the section of the video titled "How Increasing Rents Affects Value", you give an example where doing renovations to a property allows you to increase rent by $400 per month, and as a result the value of the house increased by $56,000 (assuming a fixed cap rate of 6%).
My question relates to the costs of the renovation, and in particular to the returns on the renovation. Almost as if it was a separate investment. If the cost of the renovation that allowed the rent to increase to $400/pm were exactly $56,000, then would that mean that you have made a "zero-sum" operation? 0% return, break-even as I said in the first question. I don't know how to phrase it differently.
The logic behind this is that if I need to pay $56k for a renovation that will increase the value of my property by exactly the same amount, then I don't think the renovation was worth the time, effort and risk, especially if the property had to be vacant during the renovation. If instead the renovation costs only $30k, then I have made a $26k profit from the renovation.
But maybe I am wrong because the assumption that the value of the property went up by $56k is based on the formula that uses a cap rate of 6%. So in theory it means that if I were to invest $56k in the renovation, I would get a return of 56,000*0.06= $3360 (just as stated in your video) of NOI per year. In this case, the hypothetical renovation of $56k would have a positive return, and the lower the invested amount the higher the return.
So which one is it? If I were to spend $56k to renovate a property, which in turn would allow me to increase rent by $400 per month, would I break-even with my investment or should I rather invest it in something else? (let's ignore financing because that would introduce leveraging effects)
I hope the question makes sense.
and since I've already typed all of this out, thank you so so much for the amazing FREE content your guys provide! If I lived anywhere near Los Angeles I would definitely get in contact for an operation because you guys are true professionals! I watched other of your videos and the thing that I like the most about you guys is the long-term support you provide to buyers, even after the operation was concluded. Having a trusted professional that has reliable contacts in the industry is invaluable.
If i invest in a daycare center and be the NNN landlord only and not participant i the daycare operation. The NOI here is the NOI of the daycare business or the landlord’s NOI (I.e. pretty much just rent amount) ?
That is correct. NNN means the tenants pays all the operational cost so it will not need to be subtracted from the annual gross rent.
Greaty explained!
Glad it was helpful!
I have a question, when you increase rents the expenses increase too? I thought they stayed the same. If anyone can explain that would be great thank you
If you increase rents, the expenses will remain the same. Yes.
Great info , I am subscribed. Will look up your office
Welcome aboard!
What are the other 5 metrics.?
How do you find the cap rate for a market?
To find the market cap. You would need to find similar properties around the property you're considering and calculate what the cap rate is in that area from those closed sales. Or ask someone who is a real estate broker and understands cap rates.
Excellent video as always. When I choose to invest in California I'll certainly be contacting you!
You got it !
Great Job!
Thank you! Cheers!
There are no cap rate comps for 4plexes. They are valued by the more accurate sales comparison method.
There is always a cap rate. It could easily be determined as you know the sales price and the operating income.
@@SageRealEstate There is no reliable source for cap rate comps on properties less than 5 units. Without comps you can't use direct capitalization. But the question is why would you want to use an inferior valuation metric?
beautiful explanation .......grt
Thanks for liking
Hard to find anything over 5% cap rates for 2 or 3 family homes near big cities these days. Prices still too high and rent recession is due to happen as employment is at peak in 2023
Prices are still high nationally. Try focusing less on the cap rate and compare the income versus the mortgage. Smaller apartment buildings typically don't give off a high cap rate.
Great video. How does the mortgage cost fit into valuation and cap rate? You specifically leave it out for NOI..
Debt service is on an operating expense. Cap rates are used to value NOI. NOI is income less operating expenses.
The operating expenses typically include things like property taxes, insurance, maintenance and repairs, utilities, and any other expenses related to the operation and maintenance of the property. These expenses do not include mortgage payments or other financing costs, as those are considered separate from the property's operating income and expenses.
While payroll or salaries for any employees are an expense associated with the operation of the property, they are usually not included in the calculation of NOI. However, if the property has an on-site manager or staff whose salaries are directly related to the operation of the property, those expenses may be included in the calculation of operating expenses for the property.
Great video. I generally have been dealing with commercial buildings strip centers with 6-8 stores. Thank you.
Congratulations on your success. What's the going cap rate for those types of strip centers that you invest in?
The Cap Rates run 7.09 and 8.80 in the two different areas.@@SageRealEstate
Teach me! I’m in Lakewood. My wife and I don’t want to buy our first home, we want to buy our first fourplex.
Reach out to us. You are our neighbor.
I'll be investing in Michigan initially & then out of state investing eventually... Multifamily.
Excellent
Your awesome
Thank you
You are so welcome
“There’s no reason why you’d purchase at a cap rate lower than market” well not necessarily. Perhaps that property is under rented. Perhaps that property has lower risk.
Correct. Cap rate is really only one way to measure performance, and there's always additional factors in determining a good deal.
For the same reason mortgage isn’t included in operational expenses, management fees shouldn’t either
EVERY property needs management… (yes you could do it yourself at no cost)…. but MOST property owners WANT IT therefore it should be a part the operating expenses👍
💪🏽💪🏽💰🔥🔥
that calc aint workn
Are you saying that the Calculator is not working on our website? If that's the case, we'll take a look.
You spelt management incorrect
😂
👊🏾👊🏾🔥
This is so elementary why not teach us to add
Thank you for watching. This is one of our most popular videos might be simple to you but to many folks this is the first time they've seen it.
I recently encountered a multihome apartment building of 15 units do you have an email or phone number that i can reach out to you and look over the details of this deal
Hello Jose,
Visit my website www.sageregroup.com
All my info is there. Thanks
Good explanation, thank you!
Thank you, Luis make sure to like, comment and subscribe. Your feedback let us know the type of content to create.