Thank you, Jeff. Just a real investor here, so I'm happy not to be in guru category;)

Great to hear! I appreciate the feedback.

Please explain?

@@CoachChadCarson Let's take an example of two markets. Philly and SF. The last I looked Class A office was selling at a 7% cap rate in Philly and 4% in SF. If cap rates measured risk then you could say that Philly is almost twice as risky as SF. That is wrong. Both markets probably have the same national tenants and are established markets so in reality the risk level is probably about the same. But why are investors paying $25 for a dollar of NOI in SF but only $14.29 for a dollar of NOI in Philly? Well cap rates only value NOI. That is all they do. But cap rates do not take all expenses into account. Capex can be a large expense that COMES OUT of your NOI. Rents were probably about $20SF in Philly and $80 sf in SF. So you would need about FOUR times as much sf to get the same NOI in Philly as SF. Now think of all the capex projects that are based on sf. Shoot, just think about exterior paint. $100,000 expense in SF but $400,000 expense in Philly. That is one reason for the difference in the cost of NOI. So risk can be a component of the difference in cap rates but they do not measure risk, they measure value.

That makes sense. Good explanation with the two markets and different cap ex requirements. Thanks.

Noted! Thank you.

Great to hear, Aaron! Thanks for reading the book.

@@CoachChadCarson Whats the name of the book?

Hi Kim. Technically I think you'd leave out capital expenses or reserves from the operating expenses when you calculate a cap rate. This is more the textbook definition and what's used to value commercial properties. But you'll also see a lot investors informally use a "cap rate" formula - which I've clarified as an unleveraged rental yield - as a way to analyze the income return on your investment. In that case, I WOULD include capital expenses in my line item because that's a real cash outflow for me. And from your question, I would include all of those upfront costs - price + closing costs + initial repairs + initial capex at the time of purchase in my unleveraged rental yield calculation.

Thanks Easha! IRR video coming soon.

Thanks for watching and for the feedback, Steven! 👍🏻

thank you Ankush!

Until you sell it, there will be no cash flow cuz all of that cash goes back to lenders

the appraiser, more than the bank, will look at and use cap rate. But the bank will use that appraisal - both on a purchase loan and a refinance loan - to decide how much they'll loan you. So, for that reason a cap rate will be important to your borrowing process.

Congrats on your first rental! I'm actually in South Carolina, US.

@@CoachChadCarson Thanks for letting me know. Still a lot of the principles sounds similar. Taxes and a few other things are slightly different.

will do. Video on IRR coming soon!

Thank you! New podcasts on Monday and shorter videos on Fridays.

😄

Glad to hear it! Thanks for the feedback.

IRR video coming soon! Thanks for watching, Damian.

For estimates I usually use a % of gross rent. So like 40 or 45%. But it varies a lot in real life. Thanks for watching!

thank you for the feedback. It's very helpful. I'm going to work with my editor to make sure we're not playing sound too loudly.

@@CoachChadCarson it's very important to understand everything from the video and background sound something make information hard to understand. Especially when you are not native speaker like me. I like your podcasts on Spotify, because they are without background music. Thanks for both variants!

Yep. that's true.

The $25k or $35k net operating income can be used to pay that interest on the $350,000 mortgage. For example, if it was a 6% interest only loan, that's $21,000/yr ($350,000 x .06 = $21,000). So, there'd be $4,000/yr of net income after financing/interest costs. So, in that case the mortgage balance of $350,000 would stay the same. If you had an amortizing loan, it would actually go down (not up). Hope that helps.

@@CoachChadCarson Thank you!