Understanding Cap Rates | Questions with Ken #4

Рет қаралды 42,298

Күн бұрын

To get a free copy of Ken's eBook "21 Keys to Real Estate Success" just visit this link: 7rxyf2er.pages.infusionsoft.net
Learn more about Ken and sign-up to his video library at: kenmcelroy.com/membership-acc...
To subscribe to Ken's podcast in Apple Podcast visit this link: (apple.co/2XHXD7C) or search your favorite podcast app!
To subscribe to Ken's podcast in Google Podcasts visit this link: playmusic.app.goo.gl/?ibi=com...
Join Ken as he answers your questions regarding real estate. In this session, he discusses cap rates and how he uses them to evaluate his real estate investments.
Be sure to click the bell to be notified as soon as I post the next video in the series.
• • •
Check out some of our recommended products! Please note: These are our sponsors & advertisers, so if you use them, we will get compensated. There's no additional cost to you.
For your banking needs:
➤ Business Banking for Small Businesses and Freelancers
🏦 NorthOne - Open a business banking account in 3 mins and get $10:
apply.northone.com/ken
For locating investment properties:
➤ What is Driving for Dollars? Driving for dollars is a more direct approach to finding wholesale properties than simply sending out emails to inboxes or letters in the mail. It’s the term used when you drive around a neighborhood that you think could house future wholesale deals, then document distressed properties to create unique lead lists. Oftentimes, it can be more profitable than other techniques. Ken’s fans instantly get $15 in credits with promo code KenDM!
dealmachine.app.link/kendm
• • •
•
Ken's Social Media
Instagram: goo.gl/i7BjZd
Facebook: goo.gl/TpbH2S
Twitter: goo.gl/sDsgUA
LinkedIn: goo.gl/Zs1398
•
Ken's Books:
ABC's of Real Estate Investing: goo.gl/ze5RzL
The Advanced Guide to Real Estate Investing: goo.gl/5sQ1SS
ABC's of Property Management: goo.gl/hjUUah
The Sleeping Giant: goo.gl/iZZalj
•
Ken is the author of the bestselling books The ABC’s of Real Estate Investing, The Advanced Guide to Real Estate Investing, The ABC’s of Property Management, and most recently his book on entrepreneurship: The Sleeping Giant. Ken is a Rich Dad Advisor.
Ken's company: www.MCCompanies.com
•
If you are interested in this topic you can find more information out at the links below.
Capitalization Rate Definition - Investopedia
www.investopedia.com › ... › Real Estate Investing
Oct 13, 2019 - The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be ...
What You Should Know About The Cap Rate - PropertyMetrics
propertymetrics.com › blog › cap-rate
Oct 3, 2018 - Cap Rate Definition The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property recently sold for $1,000,000 and had an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.
CRE 101: What is a Cap Rate? (Part 1) | Blog - Realty Mogul
www.realtymogul.com › knowledge-center › article › what-is-a-cap...
A property's capitalization rate, or “cap rate”, is a snapshot in time of a commercial real estate asset's return.¹ The cap rate is determined by taking the property's ...
What's a Good Cap Rate for an Investment Property? - Fundrise
fundrise.com › education › blog-posts › whats-a-good-cap-rate-for-...
When analyzing a potential investment property to determine the right cap rate, there are several core factors one can look at including location, asset type, and ...

Пікірлер: 62

@cityparkproperties7001 2 жыл бұрын

Excellent advice Ken. Possible investors asking questions is a great way to learn.

@ericwallentine6119 2 жыл бұрын

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.

@user-mm7ph5pn3s 2 жыл бұрын

you are right. its visa versa

@julioaquino6305 3 жыл бұрын

Thanks for all the information given in all your video, you are great.

@desertforest2221 2 жыл бұрын

Thank you, Ken! Especially the second half. I wasn't sure in which order to do things.

@libertysprings2244 3 жыл бұрын

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.

@dpimprovements9905 2 жыл бұрын

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.

@Mr.RyanXXX 2 жыл бұрын

I really like this video well put Ken 👏😁

@a.aspden 4 жыл бұрын

Is it generally a good idea to look for places with higher cap rates when investing unless the strategy is to value add?

@77reyles 3 жыл бұрын

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!

@costeconstantin6195 4 жыл бұрын

Great, thanks!

@johnmo9405 4 жыл бұрын

Great vlog, you've helped me with my confidence talkin too investors. Thank you

@raymondmacasaet6672 2 жыл бұрын

Thank you for sharing!

@MoneyMike2002 3 жыл бұрын

Such a legend!

@triforceconstruction8107 2 жыл бұрын

This is incredible

@klime938 4 жыл бұрын

So when u started out how many investors did you have to split the profits with

@TheCapitalistPath 4 жыл бұрын

Hi! Can you share your library books and audiobooks? Thanks!

@kmandrews_ 2 жыл бұрын

Very good !

@mkmitchell4028 2 жыл бұрын

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

@pv0315 Жыл бұрын

Awesome

@Walina1001 4 жыл бұрын

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.

@KenMcElroy 4 жыл бұрын

Thanks for watching and commenting Walina1001. I appreciate you being part of the community who watch here.

@kylegrimm 4 жыл бұрын

This person goes around to every single cap rate video to correct them. I see them on almost every cap rate video!

@Walina1001 4 жыл бұрын

@@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.

@patrickd.976 4 жыл бұрын

Thank you for all the great advices! Wish you good fortune!

@KenMcElroy 4 жыл бұрын

Thank you Patrick! I appreciate you watching.

@krico4575 3 жыл бұрын

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 😬

@harveyheinrich 4 жыл бұрын

Amazing content in your channel, love it

@KenMcElroy 4 жыл бұрын

Thanks for watching Harvey! I'm so glad that you are finding the content useful.

@diegonovak7419 2 жыл бұрын

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?

@davidk4252 2 жыл бұрын

That is GRM not a Cap Rate

@chandramouli0607 4 жыл бұрын

This answers one the question that revolves around in my m8nd , great Thanks Ken..

@KenMcElroy 4 жыл бұрын

Hey Nedunuri thanks for watching. I'm glad this was helpful to some of your questions.

@pleaseenteraname.2766 3 жыл бұрын

👌 for the great content Mcelroy

@thebestken Жыл бұрын

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.

@Fate-estates 4 жыл бұрын

was hopping he would explain what a cap rate is.

@Me-vz1rl 3 жыл бұрын

Chris Francis caprate: value of the property you are buying divided by the NOI

@Walina1001 3 жыл бұрын

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%

@daphneyqin617 4 жыл бұрын

I’m confused about the Cap rate. The way how to calculate isn’t NOI divide by the purchase price?

@Walina1001 4 жыл бұрын

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.

@1bizkid 4 жыл бұрын

Daphny Qin that’s what I thought. The higher the number the better.

@a.aspden 4 жыл бұрын

@@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?

@costeconstantin6195 4 жыл бұрын

On a google search i found that Capitalization Rate= NOI/Purchase Price.

@Walina1001 4 жыл бұрын

@RealestRealist I am! What are you confused about? I will attempt to explain better.

@Sanjipoi 4 жыл бұрын

Wasn’t this already posted before? Or am I having deja vu? 🤣

@KenMcElroy 4 жыл бұрын

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 KZfaq so I try and cover all bases.

@Sanjipoi 4 жыл бұрын

Ken McElroy you’re welcome. Glad to support those who have real wisdom to impart. Ohhhhh okay, great! I prefer listening/watching podcasts on KZfaq over the podcast apps anyways. I had recently started listening to the podcast because I thought different content was posted there vs on KZfaq so I will just focus on KZfaq then 👍🏼 as always, thanks and appreciate you Ken!

@tomyshaw977 4 жыл бұрын

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.

@wb6csh 2 жыл бұрын

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!

@scottlarsen1855 3 жыл бұрын

If a property has 50000 noi and a buyer is looking for 5% cap rate they will pay 1 million.

@Walina1001 4 жыл бұрын

A non stabilized property will sell for the same cap rate as a stabilized property. You are misinforming people about cap rates.

@a.aspden 4 жыл бұрын

How so? In general, wouldn't a less occupied place produce lower NOI, therefore lowering the cap rate?

@Walina1001 4 жыл бұрын

@@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.

@amaka747 3 жыл бұрын

hate it when they fool people that u don't need money to buy real estate

@billrykert5048 2 жыл бұрын

@mkmitchell4028 2 жыл бұрын

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