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Definitely opportunity to BUY for stalled projects based on financing issues but there will be a major influx of finished properties coming to market as well that were started in 2021 and 22. I love development but it does increase the risk because of the lag in getting it to the market from the time the shovel hits the ground. Comes back to supply and demand in the specific market but we aren't building at this moment.
Cap rate is based off what properties are selling for. So it typically comes from recently sold comps taking into consideration what the NOI is as well for those properties. Lower cap rates means there is more competition and higher cap rates means there is lower competition and people wanting to buy those properties reflected by the recent sales prices.
@@REIAccelerator I see, I was under the assumption that the value of Commerical properties are solely based off of the NOI and didn't know that the comparable sales also play a role. How would you personally know whether or not you have the correct cap rate without having all the information of comparable sales? Do the banks and the brokers pull up the recently sold properties?
The equity calculation is just the total cost minus the financing. In this situation I put 10 million for purchase price minus 75% financing from the bank. That is a 25% down payment or "equity" .
@@nguye1971you get the 3.5M from equity partners at 8-10% returns. And they receive more than that when we refi or sell. In this equation the 6% just refers to what we can sell it for.
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Nice example and thank you for breakdowns
Glad you liked it.
What do you think of the opportunities for new developers? Say multifamily development?
Definitely opportunity to BUY for stalled projects based on financing issues but there will be a major influx of finished properties coming to market as well that were started in 2021 and 22. I love development but it does increase the risk because of the lag in getting it to the market from the time the shovel hits the ground. Comes back to supply and demand in the specific market but we aren't building at this moment.
The part I don't understand is how does the bank determine if the cap rate goes from 4% to 6%. Do they base it off of the DSCR of 1.25 on the NOI?
Cap rate is based off what properties are selling for. So it typically comes from recently sold comps taking into consideration what the NOI is as well for those properties. Lower cap rates means there is more competition and higher cap rates means there is lower competition and people wanting to buy those properties reflected by the recent sales prices.
@@REIAccelerator I see, I was under the assumption that the value of Commerical properties are solely based off of the NOI and didn't know that the comparable sales also play a role. How would you personally know whether or not you have the correct cap rate without having all the information of comparable sales? Do the banks and the brokers pull up the recently sold properties?
Can you explain the equity calculation?
The equity calculation is just the total cost minus the financing. In this situation I put 10 million for purchase price minus 75% financing from the bank. That is a 25% down payment or "equity" .
How do you come up with 3.5M at cap 6% again?
@@nguye1971you get the 3.5M from equity partners at 8-10% returns. And they receive more than that when we refi or sell. In this equation the 6% just refers to what we can sell it for.
@@REIAccelerator got it. And over what time frame are you looking to refi or sell? Btw, thanks for sharing.
@ typically 18-24 months.