Just learning here, but based on the formula, going from 4% to 5% cap rate means either a 20% increase in income NOI or a 20% decrease of the property value. So I don't get why you're saying it would be a 20% decrease in NOI. Maybe you mean a 20% loss in the property value (NOI hasn't changed since the purchase) so you're selling at a loss to sell right then ata time buyers are not willing to buy for less than 5%,rather than holding until fed interest rates fall again and property values go back up? Do do you mean you would have to increase your income by 20% if you wanted to sell right then at a time of depressed property values? Please explain. Appreciate you teaching new investors but the lingo gets quite confusing when trying to learn the terms. No offense intended since I have no idea what Jim Chanos is saying when he uses the lingo either.
Thank you so much for this comment! I was trying to understand why a high cap rate would be bad but when you said either 20% up in NOI or 20% down in property value it instantly clicked.
Geez, cap rates come from an income approach to value called direct capitalization. In a 10 cap market they are paying $10 per possible $1 of NOI. In a 5 cap market investors are paying $20 for the same possible $1 of NOI.
@@kylegrimm The problem is that everyone that has watched another novice's podcast thinks they are an expert by knowing that a mortgage payment is not an operating expense but a lot of them should know better but utilize the misinformation to scam people. Hey, if you have property to sell where investors will only pay $8.33 for a dollar of possible NOI it is better to not talk about why the NOI is in such low demand but lie to them that they are getting a 12% "return". Those scammers need to be exposed.
You could overpay while buying or receive less than market while selling if you don't know cap rate. Also you could be an ignorant buyer if you don't even know cap rate. You must know it, you may or may not use it.
@@a.aspden NOI starts with PGI Potential gross income. You calculate what the property is capable of producing, Then you value it at what it can produce and make a below the line adjustment of the price for the costs and lost rents to get it to stabilized.
I saw this video before, But Wow , this video is Way Better after I had a Tuff Conversation with a Billionaire Hard Money Lender...I found an Amazing 20 Single family house bundle, but I couldn't answer all his Questions...he was interested in equity, 65%LTV,and how I would exit...Well , I re found this video because I have to learn Cap Rate, and Balloon Refinance...He didn't deny me , He said I have decide How Bad I want to Present this!
I’m trying to get it. If I pay 100000 USD for a property that is rented for 10000 USD/year, it would be 10% cap rate. In the other hand, if I buy I pay 100000 USD for a property that is rented for 5000 USD/year, that would be 5% cap rate. I think that me as a investor, I would chose to buy the 10% cap rate property. Why doesn’t cap rate matter for holding a property and rent it?
In your opening statement at 0.50 , you define (explain) Cap Rate BASS ACKWARDS! It's NOI/year divided by TOTAL COST, not the reverse! HUGE DIFFERENCE!
No, a cap rate comes from a closed sale. It tells you what an investor HAS paid for NOI. It is then a cap rate comp. An investor never needs to calculate a cap rate. That is done by professional third party companies like PWC. Ken doesn't know what he is talking about. He is either misinformed or an out right scammer.
@@Walina1001 I thought the cap rate can be used as a quick estimate to tell if a property is likely cash flowing or not at its listed price. Can you please provide some source for what you are talking about?
He doesn't know. Cap rates ccome from an income approach to value called direct capitalization. If similar properties have sold for a 10 cap that means they paid $10 for each possible dollar of NOI. In a 5 cap market investors have paid $20. If you are buying a property in a 10 cap market and it has $100,000 then you would calculate the value as $1,000,000. V=i/r $1,000,000=$100,000/10%
Thanks for all your support Paul. This was posted as an audio podcast recently, so if you are following me on my podcast you'll see some duplicate episodes. I know a lot of people prefer on or the other podcast vs TH-cam so I try and cover all bases.
Ken McElroy you’re welcome. Glad to support those who have real wisdom to impart. Ohhhhh okay, great! I prefer listening/watching podcasts on TH-cam over the podcast apps anyways. I had recently started listening to the podcast because I thought different content was posted there vs on TH-cam so I will just focus on TH-cam then 👍🏼 as always, thanks and appreciate you Ken!
Mr McElroy how to determine the cap rate for a 18 unit apartment thats vacant that needs a full total rehab. Do you figure the purchase price or after rehab is done units are 1-2 bedrooms with a few studio apartments. Thank you
Enjoyed the video - just wanted to point out in the intro I believe it’s said backwards - isn’t the cap rate as follows: (NOI / PRICE ) ? I think you said it backwards 😬
Cap rates can also indicate the possibility of leverage, if it is positif and negative. The higher the cap rate, the easier it is to increase ROI without having too much debts.
One more question your years in investing doyou know of any investors that would be a good funding partner while looking over there shoulder and using there experience to qualify or just a cash buyer that would be interested. I have a full presentation for any one interested just send us your email. Thank you
Just learning here, but based on the formula, going from 4% to 5% cap rate means either a 20% increase in income NOI or a 20% decrease of the property value. So I don't get why you're saying it would be a 20% decrease in NOI. Maybe you mean a 20% loss in the property value (NOI hasn't changed since the purchase) so you're selling at a loss to sell right then ata time buyers are not willing to buy for less than 5%,rather than holding until fed interest rates fall again and property values go back up? Do do you mean you would have to increase your income by 20% if you wanted to sell right then at a time of depressed property values? Please explain. Appreciate you teaching new investors but the lingo gets quite confusing when trying to learn the terms. No offense intended since I have no idea what Jim Chanos is saying when he uses the lingo either.
Thank you so much for this comment! I was trying to understand why a high cap rate would be bad but when you said either 20% up in NOI or 20% down in property value it instantly clicked.
Ken, good information but unless I'm missing something it seems like you inverted the equation for cap rates and it's causing a lot of confusion.
you are right. its visa versa
Geez, cap rates come from an income approach to value called direct capitalization. In a 10 cap market they are paying $10 per possible $1 of NOI. In a 5 cap market investors are paying $20 for the same possible $1 of NOI.
Thanks for watching and commenting Walina1001. I appreciate you being part of the community who watch here.
This person goes around to every single cap rate video to correct them. I see them on almost every cap rate video!
@@kylegrimm The problem is that everyone that has watched another novice's podcast thinks they are an expert by knowing that a mortgage payment is not an operating expense but a lot of them should know better but utilize the misinformation to scam people. Hey, if you have property to sell where investors will only pay $8.33 for a dollar of possible NOI it is better to not talk about why the NOI is in such low demand but lie to them that they are getting a 12% "return". Those scammers need to be exposed.
Great vlog, you've helped me with my confidence talkin too investors. Thank you
Thanks for all the information given in all your video, you are great.
You could overpay while buying or receive less than market while selling if you don't know cap rate. Also you could be an ignorant buyer if you don't even know cap rate. You must know it, you may or may not use it.
A non stabilized property will sell for the same cap rate as a stabilized property. You are misinforming people about cap rates.
How so? In general, wouldn't a less occupied place produce lower NOI, therefore lowering the cap rate?
@@a.aspden NOI starts with PGI Potential gross income. You calculate what the property is capable of producing, Then you value it at what it can produce and make a below the line adjustment of the price for the costs and lost rents to get it to stabilized.
I saw this video before, But Wow , this video is Way Better after I had a Tuff Conversation with a Billionaire Hard Money Lender...I found an Amazing 20 Single family house bundle, but I couldn't answer all his Questions...he was interested in equity, 65%LTV,and how I would exit...Well , I re found this video because I have to learn Cap Rate, and Balloon Refinance...He didn't deny me , He said I have decide How Bad I want to Present this!
Very good !
This is incredible
I’m trying to get it. If I pay 100000 USD for a property that is rented for 10000 USD/year, it would be 10% cap rate.
In the other hand, if I buy I pay 100000 USD for a property that is rented for 5000 USD/year, that would be 5% cap rate.
I think that me as a investor, I would chose to buy the 10% cap rate property. Why doesn’t cap rate matter for holding a property and rent it?
That is GRM not a Cap Rate
So when u started out how many investors did you have to split the profits with
Excellent advice Ken. Possible investors asking questions is a great way to learn.
Is it generally a good idea to look for places with higher cap rates when investing unless the strategy is to value add?
👌 for the great content Mcelroy
Amazing content in your channel, love it
Thanks for watching Harvey! I'm so glad that you are finding the content useful.
Hi! Can you share your library books and audiobooks? Thanks!
In your opening statement at 0.50 , you define (explain) Cap Rate BASS ACKWARDS! It's NOI/year divided by TOTAL COST, not the reverse! HUGE DIFFERENCE!
If a property has 50000 noi and a buyer is looking for 5% cap rate they will pay 1 million.
I’m confused about the Cap rate. The way how to calculate isn’t NOI divide by the purchase price?
No, a cap rate comes from a closed sale. It tells you what an investor HAS paid for NOI. It is then a cap rate comp. An investor never needs to calculate a cap rate. That is done by professional third party companies like PWC. Ken doesn't know what he is talking about. He is either misinformed or an out right scammer.
Daphny Qin that’s what I thought. The higher the number the better.
@@Walina1001 I thought the cap rate can be used as a quick estimate to tell if a property is likely cash flowing or not at its listed price. Can you please provide some source for what you are talking about?
On a google search i found that Capitalization Rate= NOI/Purchase Price.
@RealestRealist I am! What are you confused about? I will attempt to explain better.
Awesome
was hopping he would explain what a cap rate is.
Chris Francis caprate: value of the property you are buying divided by the NOI
He doesn't know. Cap rates ccome from an income approach to value called direct capitalization. If similar properties have sold for a 10 cap that means they paid $10 for each possible dollar of NOI. In a 5 cap market investors have paid $20. If you are buying a property in a 10 cap market and it has $100,000 then you would calculate the value as $1,000,000. V=i/r $1,000,000=$100,000/10%
Wasn’t this already posted before? Or am I having deja vu? 🤣
Thanks for all your support Paul. This was posted as an audio podcast recently, so if you are following me on my podcast you'll see some duplicate episodes. I know a lot of people prefer on or the other podcast vs TH-cam so I try and cover all bases.
Ken McElroy you’re welcome. Glad to support those who have real wisdom to impart. Ohhhhh okay, great! I prefer listening/watching podcasts on TH-cam over the podcast apps anyways. I had recently started listening to the podcast because I thought different content was posted there vs on TH-cam so I will just focus on TH-cam then 👍🏼 as always, thanks and appreciate you Ken!
hate it when they fool people that u don't need money to buy real estate
Mr McElroy how to determine the cap rate for a 18 unit apartment thats vacant that needs a full total rehab. Do you figure the purchase price or after rehab is done units are 1-2 bedrooms with a few studio apartments. Thank you
Enjoyed the video - just wanted to point out in the intro I believe it’s said backwards - isn’t the cap rate as follows: (NOI / PRICE ) ? I think you said it backwards 😬
Thank you, Ken! Especially the second half. I wasn't sure in which order to do things.
Pp
Thank you for sharing!
Cap rates can also indicate the possibility of leverage, if it is positif and negative. The higher the cap rate, the easier it is to increase ROI without having too much debts.
Such a legend!
Great, thanks!
This answers one the question that revolves around in my m8nd , great Thanks Ken..
Hey Nedunuri thanks for watching. I'm glad this was helpful to some of your questions.
Thank you for all the great advices! Wish you good fortune!
Thank you Patrick! I appreciate you watching.
I really like this video well put Ken 👏😁
One more question your years in investing doyou know of any investors that would be a good funding partner while looking over there shoulder and using there experience to qualify or just a cash buyer that would be interested. I have a full presentation for any one interested just send us your email. Thank you