Tyler! I am studying for my real estate exam in California and I couldn't for the life of me understand why higher cap rates are higher risk, and all the study materials weren't making sense. I get it now, after watching your video, thank you!
What if the property is a vacant multifamily, it has no income at the moment. How would you get a cap rate to value the property, would you create a pro forma for the expected NOI? Then how would you get the cap rate? Would you divide that by the purchase price and renovations combined?
You wouldn't be able to get a cap rate in that case since there is no income. You'd be buying based on a price per square foot and using those numbers plus your renovation costs and rent projections to get to an "end" cap rate when you're stabilized on the property
Hey Tyler, I guess I see some things a bit differently here. I heard you saying low CR properties are low NOI and high CR have high NOI. My belief is low CR properties have their NOIs at almost-max levels with only periodic increases to push them upwards. While high-CR properties have a fair bit of room to grow in NOI terms due to increasing stabilization over time and the value adds. Am I right in thinking this? For me this cap rate subject is proving to be a bit tricky to get hold of and I'd appreciate your help in resolving this :)
Yep - let me give you an example: Let's say the property is $1,000,000 At a 10% cap rate, the NOI is $100,000 At a 5% cap rate, the NOI is $50,000 So the higher the cap rate, the higher the NOI But yes - higher cap rate properties typically have better potential for NOI growth
Yes, 4 to 7% cap rates in niche like strip malls w/anchor tenant/s or medical ie: skilled nursing facilities, medical buildings for specialists are good & stable.
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What do you think is a good cap rate and why?
Definitely high cap rate, 8-10% is usually a good rule of thumb in the deals that I do.
Great video. You explained this better than my professor in my graduate level real estate finance class.
That’s great to hear! Glad you enjoyed it
Great video explaining the basics.
Glad you liked it
Tyler! I am studying for my real estate exam in California and I couldn't for the life of me understand why higher cap rates are higher risk, and all the study materials weren't making sense. I get it now, after watching your video, thank you!
That’s great to hear, Alexa! Glad the video helped 😁
Most helpful cap rate explaination ever
Thank you!
Thanks!
Anytime 👊🏼
What if the property is a vacant multifamily, it has no income at the moment. How would you get a cap rate to value the property, would you create a pro forma for the expected NOI? Then how would you get the cap rate? Would you divide that by the purchase price and renovations combined?
You wouldn't be able to get a cap rate in that case since there is no income. You'd be buying based on a price per square foot and using those numbers plus your renovation costs and rent projections to get to an "end" cap rate when you're stabilized on the property
Well Explained and enjoyed you flow.. Thank you
Glad you enjoyed it!
This is explained so well! Keep them coming.
Thank you! Will do!
Hey Tyler,
I guess I see some things a bit differently here.
I heard you saying low CR properties are low NOI and high CR have high NOI.
My belief is low CR properties have their NOIs at almost-max levels with only periodic increases to push them upwards. While high-CR properties have a fair bit of room to grow in NOI terms due to increasing stabilization over time and the value adds.
Am I right in thinking this?
For me this cap rate subject is proving to be a bit tricky to get hold of and I'd appreciate your help in resolving this :)
Yep - let me give you an example:
Let's say the property is $1,000,000
At a 10% cap rate, the NOI is $100,000
At a 5% cap rate, the NOI is $50,000
So the higher the cap rate, the higher the NOI
But yes - higher cap rate properties typically have better potential for NOI growth
@@TylerCauble got it, thanks
Great video Tyler. With financing on these NNN properties, do you see seller carry typically on the higher or lower cap rate properties?
Appreciate it. No, typically they want to fully cash out and 1031 exchange into the next asset. We rarely see seller carry on NNN investments
Thanks Tyler.
Absolutely 🤙🏼
Yes, 4 to 7% cap rates in niche like strip malls w/anchor tenant/s or medical ie: skilled nursing facilities, medical buildings for specialists are good & stable.
Cap rate & Interest Rate?
Cap rate must be higher than interest rate!!!
For sure!