Hey guys, let me know your thoughts on the different valuation methods! Have you used any of them to value a larger multi-family property?

@jamesmustion3524

3 жыл бұрын

I have not purchased commercial real estate, yet. Very informative video.

@SucceedREI

3 жыл бұрын

Thank you, James!

@cody7657

2 жыл бұрын

Cap rate approach is best approach when done correctly

@chapininusa7220

Жыл бұрын

Why you did not deduct the mortgage payments using the cap rate

@SucceedREI

Жыл бұрын

@@chapininusa7220 Mortgage payments are excluded from the calculation because they are going to be different for every investor and don’t help in reaching an objective valuation. For example, one person may put 50% down payment while another may put 20% down. Those two investors will have vastly different monthly payments. But, in either case the value of the building didn’t actually change. Payment amounts can also be different depending on loan term, interest rate, etc. Because of this, commercial appraisers and investors exclude mortgage (eg debt service) from the calculation. Hope this helps.

This is a really great video! It really helped me understand the concepts of valuation and how to look at multi-family properties!

@SucceedREI

4 жыл бұрын

I’m glad you found it valuable, Alexis!

This is great. I am a new realtor and this was very informative and helpful! Keep the awesome advice coming!!

@SucceedREI

4 жыл бұрын

Thank you for checking it out. More to come soon! 👍

Good stuff Vitaliy, i think you hit the nail on the head with the concept of using the income approach for valuing 5+ unit buildings

@SucceedREI

4 жыл бұрын

Thanks man! I appreciate you checking out the video.

Hey Vitaliy, really enjoyed this video! Thanks for sharing this content.

@SucceedREI

4 жыл бұрын

Charles Beck thanks!

This is a really informative and helpful video. Thanks for sharing your knowledge with us!

@SucceedREI

Жыл бұрын

Thank you, Shiryn!

Thank you for explaining this clearly !!

@SucceedREI

2 жыл бұрын

You’re welcome, Maria! Thanks for watching. Check out some of the other real estate related videos on my channel 👍🙏

Great explanation I have to watch it another time in another time again just to get it and make sure to take notes thanks

@SucceedREI

3 жыл бұрын

Thank you very much, Menard. I appreciate you checking it out 🙏

Awesome video!

THIS WAS PERFECT! THANK YOU!

@SucceedREI

2 жыл бұрын

You’re welcome!

Thank you sir for knowledge, keep up with the good work

@SucceedREI

5 ай бұрын

You’re welcome!

Excellent Breakdown!

@SucceedREI

Жыл бұрын

Thank you, Garry!

Good info!!!!!!!

@SucceedREI

4 жыл бұрын

Thanks, Danielle!

This is great info!

@SucceedREI

2 жыл бұрын

Thank you!

Awesome video man. One day I’ll be purchasing commercial multi family...

@SucceedREI

4 жыл бұрын

Thanks for checking it out, Mike!

I am a realtor and working with a new client. Going to apply this to estimate value of a sale of a 6 unit building. This was helpful.

@SucceedREI

3 жыл бұрын

Awesome! Thank you for watching and commenting, Leticia 🙏

GRM's of 7.2, 7.5 & 9,3 means the 9.3 GRM is not on a comparable property and should not be used. Really your spread should not be more than 1 point. Also, you should never average. If you had 7.2, 7.5 and 7.7 that shows you a range .5 points. A more accurate way would be to use the GRM of the property that is most comparable to the property you are valuing.

The cap rate is limiting in understanding the real cash flow. Sometimes the cap rate, NOI look favorable. Then you look at the coc after the debt service and your cash flow is gone.

@jimross2101

3 жыл бұрын

Debt service is a deductible expense, and you also have deductible depreciation expense for 27.5 years. There is money there considered as cash flow / passive income.

A cap rate is not a rate of return. They come from an income approach to value called direct capitalization They tell you what the market is paying per $ of NOI. In a 10% cap rate market sellers are giving up $100,000 NOI for $1,000,000. In a 5% cap market the sellers will not let their $100,000 NOI go unless they get $2,000,000. If a cap rate was a return then how does it make sense that the seller of a lower "return" won't let it go unless they get double the price of the sellers of the "higher" 10% "return"? It is a valuation metric only.

@SucceedREI

4 жыл бұрын

Hey Walina. I appreciate the feedback. I definitely agree that Cap Rate is a valuation metric. But, I also think it can be looked at as a rate of return. If you paid $1 million for a property in cash and its NOI was $100,000/year, you would be making a 10% return on your money. See www.investopedia.com/terms/c/capitalizationrate.asp and economictimes.indiatimes.com/definition/capitalization-rate.

@Walina1001

4 жыл бұрын

@@SucceedREI Ooooh, I hoped you wouldn't pull out that incorrect Investopedia definition. Cap rates have nothing to do with financing. It just happens to match up with COC at ONE point. The value of direct capitalization is it tells you what has actually happened between buyers and sellers. It tells you what NOI has transferred at. You would not know if there was financing or not and it doesn't matter unless when analyzed it was determined that there was some special seller financing that affected the price. Again, if you calculate a cap rate using your purchase price and think you got a 10% return since you used direct capitalization backwards I can correctly utilize direct cap rates (never calculate a cap rate) and buy at market of 12%. So I buy $100,000 NOI for $833,333 and offer it to you at your desired "return" of 10% at $1,000,000. You are going to have to profit $166,667 before you will see any "return". I just made your 10% "return" disappear!

@donaldwiggam6346

Жыл бұрын

@@SucceedREI kzread.infoj-NZpDAag98?feature=share

@SucceedREI

Жыл бұрын

@@donaldwiggam6346 Every so often I get someone making this straw man argument to point out how smart they are but actually proving the opposite. Arguing against something I’m not actually saying. 🙈 Obviously, cap rates are a valuation tool first and foremost. That’s what this whole video is about. With that said, the actual math of a cap rate involves assuming that someone pays cash for a property (eg ignoring any debt financing). If there is no financing and someone pays cash for the property, the net operating income divided by the purchase price, would yield the investor’s purchase cap rate and their return on investment at the time (a snapshot in time). Of course, most people don’t buy all cash and the cap rate would not be their actual rate of return.

@Walina1001

Жыл бұрын

@@SucceedREI You are confusing. You ARE saying a cap rate is a "return" and I have proven that it is not. kzread.infoj-NZpDAag98?feature=share And the cap rate is EXACTLY the same if you pay cash or finance 100%. Geez! Do the math! It proves me 100% right!

Keep it up. Getting some knowledge here. How different is the European market in your opinion?

@SucceedREI

4 жыл бұрын

Hey Ismail. Thanks for checking out the video! I am not familiar with the European real estate market so I can’t say much about it.

Ok

You stated, " But, I also think it can be looked at as a rate of return. " I commented on how that was incorrect and was hoping for a response from you after you saw my comment.

@SucceedREI

4 жыл бұрын

Hey Walina. The main point of my video is that Cap Rate is the best method to value larger multi-family properties. It doesn’t sound like you disagree with that. Whether you are right or Investopedia is right about whether Cap Rate is also defined as a rate of return is kind of beside the point and I don’t see any reason for me to argue with you about it.

@Walina1001

4 жыл бұрын

@@SucceedREI Well cap rate is really the result of the process of Direct Capitalization. It is useful for valuations where there is a reliable source of cap rate comps. I am concerned about you giving out misinformation about cap rates as a "return" because I see novice investors scammed every day by unethical people that lead them to believe that if they buy at a 12% cap rate that they will see 12% on their money. I've shown you that it is not a return. There is no argument. My law school education taught me to be analytical. I'm surprised that you would ignore the facts that I have presented to you. I am happy to clarify more if needed. I would think your purpose here is to educate, not to misinform.

@petero6090

Жыл бұрын

@walina1001 you seem eager to make sure the correct way to evaluate multifamily is being taught. Can you please make a video of your own on how to evaluate multifamily properties? I am genuinely curious.

@Walina1001

Жыл бұрын

@@petero6090 you must be east coast. I'm in SF and it's 3:30 am heading to Honolulu where it would be 12:30 am. I have no interest in making videos. But I would be happy to help you or anyone else make a factual video on the income approach to value called direct capitalization. There are a couple of correct ones on KZread but they get few views because they are not promising 22%!!! Simple, Passive, "returns"!!! I'll look and post one for you. kzread.infoj-NZpDAag98?feature=share

Very good video. I did notice when calculating NOI, it didn’t look like you accounted for the typical 8-10% of monthly gross rents for property management? Even if a person were to self manage, time is worth something

@SucceedREI

4 жыл бұрын

Great, point Josh! I think you should include that cost for property management, especially if it is going to be a larger multifamily deal where you won’t self manage. If you are going to self-manage, you probably should factor it in anyway, just like you said because your time is worth something. It does get a little trickier there because different people will value their time differently. But, I agree. Definitely worth including it.

@joshualupo1576

4 жыл бұрын

Succeed REI yes absolutely I agree. I think there’s buying a job and buying an investment and often people fail to account for true costs and do “creative finance”. This can give the illusion of cash flowing asset but really they just bought themselves a job they can’t truly step away from if they aspire to have real cash flow

@SucceedREI

4 жыл бұрын

Right. That’s why I don’t really consider multi-family investing 100% passive. There is a range of passivity with it and you can get pretty close if you outsource management, but even then, you should still be managing the manager.

@SucceedREI

4 жыл бұрын

And, to be honest, we haven’t found a management company that wasn’t gonna rip us off and do a crappy job. That’s why we set up our own management system and company to take care of the different aspects of the rental business. 👍

@joshualupo1576

4 жыл бұрын

@@SucceedREI Bingo! You do such a great job of articulating that. If you hear of any quality 3-4 unit, owner occupant eligible deals coming on market, feel free to reach out.

This is one of the best presentation of this subject i have ever seen. My question is i have a 18 unit apartment complex with office & basement units are 1-2 bedroom with studio apartments in a down town area and has a military training base there and these units are totally vacant due to the owner taking ill so they sit a few yrs they also need a full total rehab they are divided in to two buildings. How would you do this deal how would you find the cap rate,and where would you look for funding. Thank you

@SucceedREI

2 жыл бұрын

Thank you for that! I appreciate it. So, as I understand what you’re saying the building is completely vacant currently and has been for a few years. As you know, cap rate valuation relies on net operating income which means that a building needs to be income producing. In the case where a building is vacant, it’s obviously not income producing at the time you are trying to place a value on it. The way I would go about it is estimate what the building’s net operating income would be if it was fully occupied and then figure out what it’s net operating income would be (you’d need to estimate it’s operating expenses and then subtract them from the gross income). That should give you an idea of what the building will be worth in its best market condition. Obviously, you wouldn’t be offering a price anywhere near that valuation because you’d have to spend the money to renovate it and take on the risk of turning a building like that around. For that, you should build in a very heavy discount from the building’s after repair valuation into your offer. How much of a discount depends on how much work and effort this will actually take and also how motivated the seller is and any other relevant factors of the situation. In terms of financing a deal like that, me personally I would probably use private investors. My business partner and I have acquired our entire portfolio by following the BRRRR method - buying distressed or under rented and under utilized small multi family buildings like this with private investor funds, turning them around, and then refinancing them with commercial lenders. But, you may have to work up to that if you haven’t done many deals before. It’s hard to jump right into a vacant 18 unit deal and have someone back you for hundreds of thousands or millions of dollars without a solid track record. You can try going to some commercial lenders if private financing is not an option and see if they will give you a construction loan to finance the purchase and the renovations. But, they will also want to know that you have a track record and they will also likely want you to come up with a pretty high down payment. If this is not an option, you may try to bring in a partner(s) who have the money or the track record to try to get this deal financed.

@mkmitchell4028

2 жыл бұрын

@@SucceedREI Thank you for responding so many gurus dont even after saying contact us. Im sending a presentation to give you a better look and then tell me is your suggestions stand. Im 60 yrs old and has never understood how so many are successful without some one giving them a chance. The only way to gain experience is by doing and becoming credible is doing what you say and opportunities like this maybe hard for me but for some one with experience let me use there experience to learn from and guide me would be the best education and grow from cashing them out once project is done. Two buildings that can be any thing you want in multifamily industry for example airbnb city manger office wil help in any way they can because of the location being downtown area air bnb would be very profitable and renting the others. But no one will look at the possibilities, or even knocking them down and build ground up in same location because you cant buy land in this area for what i got it under contract for and thats including knocking them down. Thanks again i wont keep bothering you just one more look i dont think i sent you the presentation and do you know of any one that deal in this type of property that would partner/fund then cashing them out while learning. Thanks again Happy Easter to you & your family drive.google.com/file/d/1KO53pPorhUUhw_TMETQsczUVXOaWvp4X/view?usp=sharing

@SucceedREI

2 жыл бұрын

Hey! Thanks for sending it over. I took a look. I think your best bet is to try to connect with a local real estate investor who has done similar deals. Do you have a real estate meet up group in your area? That would be a great place to go, bring this info to, and see if you can find someone interested in partnering with you. You can also check on biggerpockets.com. If you’re not a member, you should definitely sign up. It allows you to network with investors in your area. I hope this helps. Thanks again for watching and following my content!

This video was really very descriptive. But I'm shocked at how low the number of views are. Or as you say in the real eastate business, this channel is undervalued. Run some promotional ads maen and you should see a boost. All the best maen

@SucceedREI

4 жыл бұрын

Thanks so much, Azmain. KZread game is a slow build up when you are starting from scratch and there are a ton of other more established people in the same niche talking about the same topics. When you are first starting out, the algorithm doesn’t push your videos out to very many people. It’s the snow ball effect. As my videos get more traction and I get more subscribers, the views will go up like a snow ball. Thank you for checking out the video and the channel. Really appreciate it!

@azmainyousuf5149

4 жыл бұрын

I see. Hope you go a long way my man! Btw the cap rate pricing system is something I first heard about in the 2020 movie "the banker" . See it if you haven't. Worth your time this corona season!

@SucceedREI

4 жыл бұрын

Haha nice! I will check it out. Thanks again.

Hello , I am trying to evaluate multi unit properties and their rents and I wonder am I supposed to input each unit alone into the cma or is it something else ?

@SucceedREI

Жыл бұрын

Hey Davion. I would add all of the rents from all the units at one property to see what the monthly or annual rent is. It doesn’t really make sense to compare rents from individual units at different properties.

What is the reason that a mortgage payment never gets included in determining NOI even though it’s an expense that’s will have to pay from gross rent?

@SucceedREI

2 жыл бұрын

Because the purpose of figuring out NOI is to use it to come up with an objective valuation for the property. The operating expenses (not including the mortgage) will always be the same no matter who owns the property. So, subtracting them from the gross income will always yield the same number which will be your NOI. However, mortgage expense will depend on the type of mortgage and the amount of down payment or loan to value that a particular investor chooses to obtain. This can vary from investor to investor. One person may finance 50% LTV, while another may finance 80%. One may be able to get a loan with only a 20 year amortization period, while another may be able to get a loan with a 25 year amortization period. Those factors will have a drastic effect on the monthly the mortgage cost and will, in turn, make valuation inconsistent and variable simply based on the mortgage terms that an investor chooses. Since we are looking for objective metrics for valuation, including the mortgage expense is not preferred because it is too variable.

Hi I’m newer investor been investing in Realestate part time for about 6 years and have a portfolio of 5 houses and 1 commercial automotive property with 12 units total. I Have a good deal 18unit apartment building well below ARV I’m looking at off market and need a private money lender to help with down payment and rehab. Any recommendations would be much appreciated.

@SucceedREI

4 ай бұрын

Hey! Congratulations on what you’ve accomplished so far! When I decided to start buying with private lenders, my strategy was to speak to every individual who I knew had a substantial net worth and who already knew, liked, and trusted me. You already have a proven track record. That will be very helpful. You’re not someone who’s asking ppl to invest in you having never done a deal before. You should speak to everyone you know and ask them if they know anyone who may have cash to invest and is interested in making a good return on their money. Be prepared to offer them 10-12% interest. Try to speak to potential lenders in person, be prepared, show them what you’ve already done, show them how good this deal is and how safe their money would be. Explain your plan for what you will do with the property, when and how you will refinance and pay back their principal, etc. Make sure they understand that their money will be secured by the building and offer them a personal guarantee, etc. When it comes to true private lending, it’s all a people and relationship business and every aspect of the deal is negotiable. So, figure out what is the best way to get them to invest in you, offer that, and make sure you overdeliver on all the promises you make.

the banker movie took me here but I own an income generating asset

@SucceedREI

2 жыл бұрын

Thanks for checking it out! What kind of asset do you own?

Any updates to this for 2023?

@SucceedREI

Жыл бұрын

Hi Joanna! The valuation method I referenced in this video still applies. But, the market has turned and I think we are going to start seeing large multifamily values coming down a bit in 2023.