Posted by j cowan on January 23, 2002 at 07:02:49:
Cap rates are used to capitalize income streams. The type of math that Ed was using is simply known as IRV, income = cap rate multiplied by value. You can manipulate this formula to solve for any of the variables. Also, you can find out what type of cap rates are being used in your area by calling a local real estate appraiser, property manager, or broker. It also is important to note that investment value (the price that you can pay and still make a profit), and market value are rarely the same, so It is perhaps more valid that you derive your own cap rate based the rate of return you desire, and the risk associated with this investment. Good Luck!
I have a chance to purchase 67 townhouses, all or renting for $625. 60 are currently rented. That is a good price and market rate. They were built 2 years ago by a contractor in Concord that found out he has cancer and wants to sell to travel.
Do you know of any commercial lenders that will lend 100% or even 95%. Seller will take a second but I don’t know the details (on how much or interest rate or loan term.)
Re: Ed need Commercial Funding Help… - Posted by Ed Garcia
Posted by Ed Garcia on January 23, 2002 at 01:01:18:
Mark,
Using your numbers of 625 per unit, which it’s hard for me to believe because there usually is a variation in the rents, your projected monthly Gross Income is $41,875.
$41,875 X 12 months = $502,500 Annual Gross Income.
You’ve got 7 vacancies out of 67 units which is about a 10% vacancy factor.
If you take your Gross Income of $502,500 and take off 35% for expenses and 10% for vacancy which is 45% or $226,125, that gives you an NOI (Net Operating Income) of $276,375. I have used a generic formula just to get a ballpark, Not knowing the Cap Rates being enjoyed in your area. At a 10 Cap. This property is only worth $2,261,250…
I don’t see a deal, or as the old lady in the Wendy’s commercial use to say " Where’s the Beef".
Obviously if the values not there, either is the financing.