I made a new video that explains how to do deals in 2023 if the 1% rule or other cash flow rules of thumb don't work: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-2Q3rZ9VeXt4.html
I started watching about real-estate videos since 2021 but ... This one of the few channels which provides really deep insights and number calculations..... Good work bro 🔥
Good video. How can manage taking over a property where there are tenants already in property, keep the rent the same or increase the rent by 10%, which might drive them away and I would be trying to get new tenants during that time? Thanks
Dozens and dozens of videos, with millions of views and click bait thumbnails and titles, and NONE of them cover this information. "How you can invest!" And then don't talk about how any of it is done. This is quality content and much appreciated.
@@CoachChadCarson And a reply from the content creator! While you're here.. 😄 I'm taking a cash out refi to begin investing in properties. Do you have any opinion on Roofstock or recommendations for purchasing investment properties in other states?
BEEN DOING THIS FOR 30 YEARS!!!!!!!!!!!HAVE 40 PROPERTIES I QUIT MY JOB AT 39 IN 2004!!!!!!!!!!!THE BANK WAS GLAD I QUIT BECAUSE THAT GAVE ME MORE TIME TO WORK ON MY RENTALS!!!!!!!!!OH YEH I GOT LAUGHED AT BECAUSE OF MY JUNKIE HOUSES!!!!!!!!!!!!!!!BEEN DOING WELL EVER SINCE!!!!!!!!!!!JESUS IS LORD!!!!!!!!!!!!!!!!
I love your back of the envelope calculation. I have owned up to 70 properties, made large amounts of money, lost large amounts too, but real estate investing really is this easy. You really do a great job breaking things down for newer investors. Thank you!
Bro you are easily the most honest educational content creator out here on investment in real estate....thankyou for not being dramatic for likes and subs..I watch this several times to keep me grounded
Agreed! Every time I look at a property I have to review this video several time as one of the best video for new investor like me. Wondering if @CoachChadCarson has any video on offer price.
Finally someone is using plain English. It is amazing how much white noise you hear when starting out but this video gives real practical advise. I'm gathering knowledge now before taking the leap of faith and getting my first rental. Thank you so much for breaking this down into easy to follow steps that i will find invaluable moving forward. Great video and much appreciated.
This video is GOLD. Every real estate investor should watch this. You went in depth on all the major components of real estate analysis and broke down the concepts so well. This is the type of video I'll always refer back to. Thank you!
@@CoachChadCarson Coach; I am 63, a college graduate, I am a working person but (obviously) I can retire. I have $20K in the bank for a downpayment on a piece of property, and would like to buy a home (to rent out a room) or a rental property (and I would live in one of the units). I am looking in Texas, the Corpus Christi area. There is a 2 on a lot deal, the owner is asking $70K. The places need some work, need carpet or flooring (and I'll probably choose flooring). I have a "high 700's" credit rating, but I only earn like $2K per month, and I will probably earn less for a while if I retire to do work on the properties. My retirement income will be MORE than what I need to pay a monthly mortgage payment on the properties, but I will be done working on the rental unit (the unit I rent) before a month. Everything works out nicely in my mind. (I will work part-time at the same time I am working fixing the rental unit for rent, so my income should be well over $1,500 per month, not to mention the $20K I have in the bank for investment.) How do I convince the FHA loan people or conventional loan people this is a good deal? The very negative loan broker tells me that the FHA will NOT let me have a loan, that I will have to go to conventional loan, or private money -- what do I need a loan broker for? Anyway, the rents in the neighborhood where I will buy is about $800 per month. That kind of rent will be enough to pay the loan and expenses and even pay a small positive cash flow. I will even rent a room out in the other unit on the property that I am living in myself. All your criteria seem to be met with this deal. How can I get the lenders to agree? I am looking at becoming a real estate investor. I was a licensed general contractor for a few years between 2017 and 2019, then I decided I would become a teacher -- when the state of California opened up its "district intern" program and I found out about it. I was on a "district intern" program in 2009, "hired" by the Los Angeles Unified School District in CAlifornia. Then it closed up, and I had no teaching job. In fact, I had no real job until 2014, doing a bunch of gig jobs, mostly handyman work, some paralegal work too. I got a job in a credit card factory in 2014 and worked at that for 3 1/2 years until in 2017 I decided the economy was good enough to try something else. But at a Christmas party in 2018 I found out that the "district intern" programs re-opened, so I went and signed-up with the Los Angeles County Office of Education as a "district intern." I finished the "teaching skills" part of their program, but did not yet take the "subject matter" skills exam, but by that time the PROGRAM CLOSED AGAIN! But this time for "covid 19" reasons. I left for Oregon to stay for a cheaper rent at my sister's ranch in Oregon. Too cold for me there. I am moving to Texas. That's my life story. Let me know how to get a loan at the best possible rate either by conventional loan, FHA, or maybe private money. I am working now, in Oregon, but moving to Corpus Christi like in a few days. By the time you read this (if you do) I will be in Corpus Christi. I will try to become a teacher in Texas too -- they have "district intern" programs there too. But I will keep working either as a teacher or as a handyman working on my own properties and part-time at a golf course and pull my SS retirement income at the same time. I am still quite spry. I look at my physical work as exercise. I am in shape and I do not shy away from work. So, again, you know my life story here, let me know what you would do, especially with regard to getting financing. I understand I can obtain as many as 10 rental properties using FHA financing? Great! I really want to set up for retirement and owning a lot of rental property. I think homes are best to rent, but maybe apartments are good too. Would like to eventually own a mobile home park.... let me know something. Thanks
@@billygraham5589 I wish you great success in you endeavors. However, focus on one thing first. Ask yourself what do you want. Real Estate is the industry that have made tons of people millionaires, but the industry needs focus. Becuase Rental Properties business is different from investing for capital gains, also different from mobile homes, homes parks, or RVs. Also different from airbnb So decide what you want and focus on it. Because although all real estate have these same valuations formulas, the business side individually have some perks you must know so you can achieve your dreams. Again I wish you great success you are doing great.
I went through entire exercise of writing everything out and working out the formulas with real properties with my notes, then once I understood it a little better (I had to rewind several times, haha) I printed the cheat sheet and added some abbreviated notes as reminders. Great, simple tool for what at first seems overwhelming. Thank you!
Students who take notes and apply what they learn are the best! Nice job Nancy! It definitely makes me happy but more importantly, I think you'll notice a difference in more confidently analyzing your own deals.
That was a really good analysis. I’ve been around real estate for 15-20 years now, and you described these income elements better than I’ve heard before. I will definitely use this to teach my kids :-). Thank you
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This video is so helpful and have watched multiple times and can’t recommend enough. Even people with no finance background can make sense so easily. Thanks, Coach.
@@CoachChadCarson With the high prices of houses, I have searched and haven't found a house in our area that meets the 1% rule. Does this mean to wait until rents rise in the area or home prices fall or both to get closer to the 1% rule...or has things changed with the 1% rule
@@CoachChadCarson How do you know what the rent should be in a particular area since it fluctuates even in the same city (in Memphis, rents can range from 1200 dollars/month in the less desirable areas to 2200 dollars/month in the better locations. Do you use a real estate website and look at rents in the area to get an idea.
@@brianborkowski5977 hey Brian, I made a newer video about that question. Let me know what you think: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-2Q3rZ9VeXt4.html
Property prices have increased so much in the last two years in my area, its priced the rental market out of existence, there is no way you could look at a house at the 1% rule, even breaking it up into two or three rental spaces, the average person couldn't afford the rents.
We Californians are like where is he getting these house prices from.. you can’t get much for under 500k in California.. 500k/ 30k 2500 a month rent) = 16.6 That’s not too bad but with a mortgage and high interest rate cash flow would most likely be negative..
You can purchase property anywhere in America. Tennessee is a great place for incredibly inexpensive homes. If you’re dealing with section 8 housing then the rental income is guaranteed.
@@restorationcarpetcleaning4140 So are the major damage to the property as well as twice the people on the rental agreement and three times the number of dogs or cats plus guaranteed smoke & pot damage.
I learned something similar to this in an audio book series. They taught NOI similarly, take total annual rents then subtract property payments on a 15 year mortgage, then subtract 10% of total rents for management fees, 10% for maintenance reserve, and 5% vacancy rate. If the NOI was positive after all those deductions then it was a deal, with expectations of 3-5% rental increases per year.
@@albe7292 The Weekend Millionaire, I got very lucky my first property. I was looking for warehouse space for myself, at least 3k sq feet for my business. In the area I was looking, I found a property for sell that had 2 buildings 10k sq feet each. With this formula you can value a property to the penny, if asking price is under that then its a buy. In this particular case, in my area you could rent 10k sq feet for $2400 easily per month, so 2 buildings 4800 per month. 4800x12 is 57,600 in expected rental income. Subtract 10% management fees, 10% maintenance fees, and 5% vacancy, bringing net income down to 43,200. Then deduct taxes and insurance which is around $3000 a year combined. So $40,200 was net rental income. If my total payments per year are under 40,200, then I cash flow the difference. Anything over is an easy no. The owner was asking 200k on the property and tax value was around 180k. He owner financed for 15 years at 4% with 0% down. My payments are $1479 per month or $17748 total, so the property cash flows over 22k per year, assuming I never raise rents, and in 15 years I own it. The Weekend Millionaire was probably done in the early 2000s, but its rules are the same. Most properties that hit zillow, redfin etc have already been picked through, and are well represented. The best deals are from just reaching out to people personally. The course talks a lot about structuring deals and offers to best suit the sellers. The $30 course over a 15 year period just in my 1st property will add over million dollars to my total income/net worth.
@@OptionsJunkie Happy for you! There are some big home improvement expenses such as Roof, HVAC, and Plumbing... did you factor them in maintenance fees 10% as you mentioned?
@@HungNguyen-qo9xt The audio book goes into details about any renovations that need to be done before purchasing a new home like hvac,, new appliances, or roof etc. Those problems are all solved with the math prior to even purchasing the home, and all fresh before the 1st tenant. The 10% maintenance fees pretty much covers all future home repairs. A roof typically lasts 20 years and Hvac 15+, I buy 5 year warranties on all appliances to cover my bases. A rent of say $1800 a month brings in over 43k in 20 years in maintenance reserve. I got a new roof on my home in 2020 and it was $14000 and I have 3700 sq ft. So say the avg roof for an 1800 rental is $12k, new Hvac replaced in that 20 year spread another 12k. That leaves you with 19k to buy what appliances needed, and I believe is plenty, but if you felt you needed more you could reserve 12 or 15% in the math.
This video is awesome and I used all of these tips to buy my first 4plex. Another thing to take into consideration is look at what the Market Rate Rents are in your area. I look for Rent "Wedge" Deals. My 4plex rents were at 575 for all 4 2brs. Market Rate Rents are 750 in my area. I knew with minimal work/$ I could raise those rents to Market Rate. I went one step further and went for more updated "luxury" apts. Raised rent to 850 and thus increasing the value of my building and my ROI. Building was 235k and is worth 340k+. Not to mention my basement is massive and has potential to add a 5th unit upon city approval. Look for these key things to build true wealth! Thanks for the great info :)
Nice! I like the "wedge" deal term. And finding those deals where you can add value certainly makes a lot more sense! It's also where I've made the most money. Thanks for sharing your details!
Thank you for putting this simple yet in-depth presentation together. Simple math education in real estate at its finest. This was so helpful and it didn’t take some flashy so called “guru” giving vague examples. Wishing your channel much success!!
All of these formulas are also most commonly used in stock analysis, for example the 1st formula: GRM can be compared to a stocks P/E ratio (price/earnings). Its amazing the power of these financial tools and how they work with all asset classes. Thanks Coach!
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I appreciate your emphasis on why equity matters. I also tell my clients all the time that appreciation does not pay your monthly expenses and to pay attention to income and expenses. Great video! Lots of gold nuggets.
Very true! Lots of real estate investors who are rich "on paper" but have trouble paying the bills (especially in a downturn). I appreciate the feedback and best of luck with your investing and helping clients.
One of the best videos on real estate 101. You are literally teaching like a teacher and that really helps . I'm completely new to real estate investment and this video has motivated me in the first 7 mins itself. Thank you so much
Hey, this is the first video of yours that I've seen. Really like the drawn explanation. Some other channels just run through the subject like you're supposed to know what it all means. Really liked this approach for folks like me hoping to get started. Looking forward to browsing your other videos. Thanks!
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I am not the type to spend too much time in seminars. This is 100% better and any time spent in a seminar that will yield no info and ask for some membership later. Thanks, I appreciate everything about this video.
You summed up almost everything I have learned and used in 40 years of real estate investing. Great job. No exaggerated examples to make it look too easy. Thanks. I'm forwarding this to several close friends.
I learned about using different formulas like gross rent multiplier and cap rate to analyze rental properties. Understanding the importance of income generation and equity building in achieving financial goals was insightful. A thorough and practical guide for anyone looking to invest in rental properties!
Thank you so much for breaking down how to analyze a property and then how to compare it to other potential properties. I’m just starting to consider rental properties and this was the perfect video to begin thinking about the relevant factors.
This is great information provided for free. I’ve been doing this stuff for a while and I haven’t found anyone on RU-vid that explains it as well as you. Great job sir! 👏🏼
I love runs numbers to the teeth! Most people think real estate and rental are great business. But stock market its easy and returns are almost the same. Rentals works better if you are 1099 or W2 high incomer and good for diversification. Lot of works .
Love this! You broke down each rule very well and helped me to better understand the foundations of them. I know NIAF as cash flow so my mind was a bit blown when it clicked that you were talking about the same thing.
Brilliant - Thank you for really breaking it down and laying it out - Really appreciate it! Im not great with excel - this really helped with being able to properly format. My clients will be equally as grateful! Looking forward to the rest :)
Great stuff Coach. When you taught us the NOI formula in 2011 it was a lifesaver. Thanks for stacking these tools so that we can understand how the cash flow analysis interacts with comps and how to prioritize. This is one of those dense content videos that I will need to come back to a number of times.
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*Internal Rate of Return* is the best metric I've found to see how a rental performs. See me break it down in this next video!! ► ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-HJnnpXoR6y0.html
Good video but what I don't understand is how can one find the CAP RATE on a property BEFORE they own that property and by owning it would know what their operating expenses will be? How can one know their operating expenses before having the property and thus how can you do the math to get the CAP RATE?
And the other question I had is: do we need to use ALL or just some of these calculations in order to size up a property to determine if it's a good deal or not?
@@jjr4070 good question. Short answer - you just have to estimate. But you can get good at making fairly accurate estimates. For example, property tax rates are on your local tax assessor website. For insurance you can get quotes from an agent (or talk to investor friends to see what they pay). Management fees you can get quotes on (often 8-10% for my residential properties). Maintenance is tougher to pin down because some properties have a lot more than others (older, high maintenance materials, etc) but just to give a rule of thumb my properties have averaged between 10-20% for maintenance and capital expenses over time. All of this together allows you to run the numbers on net operating income and cap rate before buying.
@@jjr4070 most people don't use all. It's like tools in a toolbox - some people prefer one tool over another. And there are certain tools more useful in some situations than another. For example, I just use GRM for big picture market analysis. But NOI, NIAF, and cap rate (actually it's close cousin unleveraged yield) I use on every rental. I like to use a few core metrics because each one might tell me something a little different about the deal - like different gauges on an airplane dashboard. Hope that helps!
thank you so much! You make it really simple and fun to learn. I'm 19 and im so excited to purchase my first property! Would love if you share tips on investing in rental properties for beginners. Love ur vids!
I'm jealous you are getting started so young, I wish that had been me. The best thing you could do to start IN MY OPINION is to house hack. i have a few videos explaining it on my channel. But essentially just buy a duplex instead of your first single family home like your friends will be doing. Then move in one side and rent the other. The tenant will pay you rent and use that for your mortgage. You should be able to get most of your mortgage paid for that way. Then get a roomate. a significant other or best friend and charge them fair price as a roomate and BOOM you've probably paid for your entire mortgage. NOW you are living for free. NEXT BIGGEST MISTAKE is dont burn that newly freed income. SAVE it and invest in property number 2. This is the one that starts making you MONEY. Then buy number 3. 4 years after buying your first property you could easily have 3 more. And probably you are retired and financially free by 26 or 27. Good Luck you can DO IT
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This is one of the best videos I’ve seen so far I’m a new investor and have scrolled over countless videos Chad thank you for breaking it down. This is the exact information that I was looking for to be able to start analyzing. I really appreciate it. It’s gonna stick with me for lifetime.
Hi Coach Carson, THANK YOU VERY MUCH for this comprehensive rental property analysis for both income and equity sides. Quick question: among the four income metrics - GRM 1% rule, cap rate, NIAF, and CONC, which one is the most important one? Let's say we compare between Property A and Property B and Property A has a better GRM but worse NIAF; then which property is better overall? Is there a weighted average that can be assigned to each of these income metric? Also on the equity side, can you educate more on how to find discounted deals? (i.e finding through a specific database, associations, networks, etc). I am looking forward to learning more from you!
These are some great formulas when analyzing properties on your own. When we find properties for our clients in the Toronto area, we just run the numbers through our Property Analyzer spreadsheet for them. That way we can send them only properties that meet their cash flow and ROI expectations. Often we have to show clients what to expect from different markets so they are disappointed when we start looking for properties. But it also allows us to make a quick move on really good deals when they come up.
Bro I’ve watched so many different people on RU-vid on real estate and so far you’ve explained this way better than every other RU-vidr I’ve watched . All the other RU-vidrs will make 5 min videos and honestly just brag. But you my friend take your time and break it down. I learned a lot from this video thank you. I subscribed
@@CoachChadCarson Yes, he was an old pro! His favorite thing was to sit down and pencil it out, as he would say. If the numbers worked, it was a go! He taught me so much about buying and selling. Emotions are not part of real estate. It's all about the numbers, and timing.
This is great stuff! Once thing that can easily confuse people though, is using your own terminology that is not standard terminology used in the market. An example is using NIAF (Net Income After Financing) which looks to be exactly the same thing as Net Income. I've been in the industry for quite a few years and never heard Net Income referred to as NIAF. That confused me when watching this video. Love your vids though
@@dennisgarcia7590 It's also common sense to stick with standard terms instead of inventing your own new redundant terminology that means exactly the same thing :) It would be like inventing my own accounting term "accounts receivable after billing" which means the same thing as "accounts receivable". What's the point?
Literally the best keys to keep in mind when considering investment properties! I’m so glad this popped up in my search. Thanks coach! Keep these videos coming!
A well thought out and easy to understand overview. Thanks for taking the time to put this together Chad! I'll be sending this along to my own clients.
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
We are starting out investing in the South African retal space. Thank you for giving me the tools to analyse properties better! You need to come visit!
When calculating the net income after financing, should you include not only your p&i payments, but your closing costs? Where are they reflected? Thank you so much for your podcasts and videos! They've been very helpful to us!
Hey, thanks so much for the video. I’ve sat through lots of videos to better understand how to “run the numbers” and not many are as easily explained as yours. I’ll certainly refer back to this over time and have subscribed to your channel. Keep up the great work!
Basically 1% rule is any property with GRM below 8.33. Good to show how they correlate. So gives you and idea of a good GRM if prefer that method. Great video
I'm just on the 1% rule so far. At the moment, in the market I live, no homes come close to the 1% rule. I know you mentioned you could adjust it as needed. You gave the example of 0.8% rule instead. I'm curious if others are finding it basically impossible to find a home that meets this criteria.
1% rule is rare to find. A way to meet the 1% rule I sort of see is to find a remodel that’s empty of renters, fix it up, then get new renters at the current market rate. This would have high up front costs and take time to generate income.
This is probably the most informative video i have found so far. Most videos just go through tips and ideas, but dont really tell you how to calculate the numbers.
Wonder about the 1% rule, at least where i live! We are usually happy with a net return of 6-7%. In your example you get 12,6% which is great but sadly not realistic as far as we are concerned.
thanks for the comment. The 1% rule doesn't work everywhere or with every type of property. In my experience, the 1% rule translates to a 6-7% NET return (without leverage). This is after deducting all your operating expenses, because the 1% rule is just a ratio of the gross rent.
What a helpful video, im an accountant looking to do my fist investment and didn’t want another pep talk video about investing, I wanted numbers and formulas and you did just that, thank you soo much!!
Thank you Coach Carson for your time and effort to make this video , your explanation is easy to understand and very thorough. You help a ton of people, it's a very valuable information you are sharing, you have a good heart!!! May you and your family receive many God blessing!!!
I read the book "ABC of real estate investing" this the same information that was said in the book. It gaved me that extra boost of understanding the concept of each term and on how to analyze a property. Thank you so much for the helpfull video, for sure already subscribe, will keep watching your videos!!
Thank you so much for this video! Completely new to REI. I stumbled upon a property that seemed like a good deal but needed a video to help me confirm it with numbers. This video is exactly what I needed.
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
I think we should also factor these costs into cost of property while calculating GRM; Strata (here in Australia, property management body is called Strata) - usually is between $600 to $1300 per quarter Council fees - $250-$350 per quarter Water fees - $180-$300 per quarter
@@umayrjaved the video is about analysing rental property. He doesnt say you need to buy a house in Sydney. Rental yield is used as a quick way to check the yield of any property before you buy it. There’s other fees ie. council rates, property management fees, strata etc. But you need calculator for those
Thank for the quick calculation methods. I would love to see more market specific examples. In Seattle, there are a lot of 1 bedroom units going for $2000/month but the SFR property likely costs close to $800k. Would we need to factor in multi unit SF homes? I can't see where a $200k home could get $2000/month. Would love some examples. Thank you!
Noted. Good suggestion on examples from different markets. I'll plan to do some deep dives on running the numbers in different places in future videos. Higher priced markets have a different dynamic of rent to price ratios. So, the 1% rule is less applicable - which also means they do not produce as much cash flow for the price you pay. You have to either make money in other ways - like appreciation (forced or passive) - or you have to find other niches where cash flow is better, like short-term rentals, commercial, mobile home parks, etc. Some people also just invest out of town in other markets that do have the cash flow dynamics they want.
The beauty of these formulas is you could literally sit down with Zillow and start running numbers on properties right away. You could analyze properties while watching Netflix or waiting in line.
1% rule doesn’t work anywhere in Australia, it’s more like the weekly rent = 0.1%. So a $400k property can get $400/week, sometimes, but often not. I have never seen a $400k property that can get $4000/month.
Kind of a long and drawn out statement of what my Grandfather taught my Father in the 1940's. 100 times the monthly rent equals a fair price for a property because this gives you a 12% return on your gross investment and you can make a profit on that after usual maintenance. KISS
Thinking about a business to make money weekly,, With over 60,000 account holders blockspace has been at the forefront of the forex trading industry since 2016,access over 10,000 global markets and trade with attractive marginal rates..it is regarded as one of the best, most beneficial, brilliantly successful companies in the industry of forex trading
This is a great video and the first (but not the last) video of yours that I have watched. This video is explained and broken down to the simplest comprehension. Great job.
A cap rate is not a return. They come from an income approach to value called direct capitalization. An investor never needs to calculate a cap rate. That is done by third party professional companies such as PWC that analyze closed sales and derive cap rate comps. All thos do is tell the market what $1 NOI is currently selling for. You cannot calculate a cap rate unless you have the NOI or the rate. Only a very poor investor would try to use asking prices to calculate anything. Also a cap rate has nothing to do with financing. It remains the same with no financing or 1oo% financing. So if you buy my $10,000 NOI for $100,000 you think you are making a "10%" return? NOPE! I used direct capitalization correctly and used cap rate comps of 12% X the $10,000 NOI and bought for $83,333 and made $16,667 by flipping it to you because you don't know how to use cap rates. Where's your 10% return now? Chad, back to the showers.
"an investor never needs to calculate a cap rate." You do know the same concept of a cap rate can be used by a 3rd party appraiser AND this poor investor who wants to evaluate a particular property? And this same poor investor can buy that property BELOW that market value because he or she understands how to use them more broadly than an academic exercise? Or maybe I should just return all the properties and profits I have earned over the the last 17 years with my incorrect use of formulas.
@@CoachChadCarson First, you are not calculating cap rates. You are doing some novice calculation that I call a crap rate. Direct capitalization is V=I/r You do not have a V or an r and cannot correctly use direct capitalization with only one input of a three input equation. You are wasting your time. Secondly, a 3rd party will not have access to the principals of multiple closed sales to derive meaningful cap rate comps unless they are working for firms such as PWC or an Assessors office. Appraisers rely on these firms for cap rate comps that can then be used to VALUE the NOI's of their subject properties. They are not deriving their own cap rates. Thirdly, when you buy "below market" you have created a new higher cap rate and if the property is of any significance then the professional third party company such as PWC would analyze the sale and determine if it means that the market is actually softening or if there were circumstances to the sale that explained the increase in cap rate. And finally, any success you have had has been in spite of your obvious ignorance of direct capitalization.
The 1% rule is meaningless. It is just basically a PTR ratio, (price to rent). Rents are negotiated between renters and landlords. Prices are negotiated between buyers and sellers. All the PTR ratio tells you is that in a 1% market $2000 rent will sell for $200,000. In a .5% market that exact same $2000 rent will sell for $400,000. Why would a seller let their property go for half price if in fact their PTR ratio made their property the better property? This is mostly a scammer ploy to sell low value properties. The better thing to look at is the change in prices and the ratio. If the 1% market sees small to no appreciation you are better off in a .5% market where prices appreciate regularly. Skip the PTR ratio. It is a useless metric.
@@CoachChadCarson I'm sensing that you have no concern for dispensing correct information. You are trying to muddle real estate investing terms with stock terms. Why don't you try to show how the 1% "rule" is equivalent to P/E ratios. I'll be happy to show you where you go off the rails.
Very good. Excellent info. I'm just getting out of the business at 70. There were times when I could spit into the wind and make money. Other times... Not so great. I once had a 14.5 percent mortgage. One of my best investments when rates dropped and I sold. 18 months. Price doubled. I was happy. Long term capital gain 10 percent ... Thank you irs...
Thank you for sharing your story and insights, Vincent. It's great to hear from someone with your experience and that real estate has worked well for you.
SIMPLE In a 5% cap market investors are paying $20 per dollar of possible NOI. In a 10% cap market they are only paying $10. NO ONE can tell me which is the more profitable market from that. Not you., not Chad. Yet Chad wants to charge for the misinformation and you want to blindly go along drinking the Kool-ade If there are any professional investors that can support your misinformation I challenge them to step up. Hey, let's ask Ben Why!!
A big part of being successful is being able to adapt. When I look at a property I don't need every number. It's a dump. I know I need a chunk of money to fixup but I don't keep every item. Huge flexibility in how repairs are made. $5 vs $50 light. Do the repair or think of a different design. An open kitchen is appealing and requires fewer cabinets.
You are using GRM's incorrectly (backwards). They are an income approach to VALUE. You are starting with some value that you don't identify where you got it but it really doesn't make a difference since if you have the value you are wasting time calculating GRM's. V=rents X GRM's from similar properties that have CLOSED! It doesn't tell you if it is a "good" or "bad" investment it just tells you that in a 20 GRM market a $1,000 of rent is selling for $240,000 but in a 12 GRM market investors will only pay $144,000 for the chance to get that same possible $1,000 rent. Which is more profitable? Can't tell from a GRM but I would wonder why investors are paying more in the 20 GRM market. You are leading people astray.
Math formulas can CORRECTLY be calculated forward OR backwards depending upon what you need to know. In this case, it is easy to find price and rent data. So you figure out GRM, which describes the mathmateical relationship between the price and rent. If that is leading people astray, not sure what you are aiming at. Please listen closer before commenting. I never said a GRM tells you if it is a good or bad investment. It tells you how good or bad a market or a property is at producing gross income for the price paid. It's important not to get stuck in semantics but rather to use math to make good decisions.
@@CoachChadCarson OK, where are you finding price? From what I saw you are using listing price. That is foolish. And why are you trying to solve for GRM on a listing? That is backwards. GRM's are an income approach to VALUE. You look at closed sales and correctly determine what GRM they sold for. THEN you can correctly solve for VALUE using those GRM comps. If The comp GRM's were around 10 then if you want to buy a similar property with $4000 rents then you can determine that the property should sell for about $480,000 even though the buyer is asking $600,000 and you wasted your time calculating a 12.5 GRM. I am trying to save you time and money.
@Fidel Obu Please reread. I never called anyone foolish. I correctly stated that using a listing price in any calculation in direct capitalization is foolish. Do you disagree with that. Let's discuss the content and not get our panties in a bunch trying to deflect from what is important.
Slow your role Walina1001. It's always a good idea to calculate CAP rate and use GRM when evaluating an investment property. They're not the end all be all and Chad's not saying they are. They're not going to necessarily tell you that they are or are not bad investments but they can suggest that they may or may not be. They give you a relative measure of the investment. The more information and analysis tools you can use when evaluating a deal the better. If not for your sake than so you know how other people will be evaluating it if you were to sell it. Because whether you think it is correct or not, Walina 1001, everybody in the industry uses them just as Chad is suggesting. So, you might as well understand how your buyers are going to look at it. And the 1% rule isn't a buy or not buy strategy either. Again, Chad's not saying it is. 1% rule is more of a "should I take the time to go look at it" strategy. It is the roughest of measuring sticks done as the first means of crude evaluation. To any new investors that can profit from the information Chad has taken the time to assemble and make available I'd say: listen to what Chad is saying and get familiar with it. I'd also suggest you not get too bogged down on the exact, precise, acute definition of what CAP rates, GRM's, 1% rules and the like are or are not. Their value is evident on a pretty elementary level. People that get stuck on over analysis like that (not naming any names) don't make good real estate entrepreneurs. They spend all of their time debating superfluous details instead of focusing on what the point of this video is all about. Which is finding and evaluating deals so that (hopefully) you can buy the right ones and get on with "doing what matters" with your life. Which, by the way, is not heckling Chad. Thanks for the info, Chad. As always, great content. Keep it up.
@@antpetz123 You stated, " It's always a good idea to calculate CAP rate " ! That is IMPOSSIBLE! All you have is possibly NOI and nothing else. Please convince me that you can do the impossible.
Thanks for sharing easy breakdown! Your method of instruction is easy to understand. As someone with ADHD, I appreciate back of the envelope calculations to quickly eliminate properties without using exhaustive spreadsheets each time.
This is good information, but perhaps the best information I have ever received from an investor that I was learning from, was that I needed to identify the housing in my market that was at the peak of the curve for ROI. I learned that properties valued at 1/3 of the average home value were the most profitable in my market. $300k for one home or three $100k homes.
that's helpful to hear! Thanks for sharing. I've found the same thing that different markets have different "sweet spots" with the best return on investment.
I use GRM as well. However I include in my calculation a plan for one months rent for maintenance and insurance, one month for property taxes, 1-month for vacancy. So I base it on 9 months instead of 12.
Hi Coach, thanks for the great video. I have a couple of questions please: Cap rate: - why don't we include the financing costs? Wouldn't that help have a better estimate of the returns compared to per example the bond 3% you mentioned as an example? I know you said it's easier to compare properties to know how good they are at producing income. But since we're also using the financing costs in the NIAF and cash on cash, why not use it here too? - How can I estimate the repair costs in the total purchase price? NIAF: - same logic with the cap rate question, could we calculate NOI - (financing costs + repair costs)? How do you estimate the appreciation of a property? How do you calculate opportunity cost financing for let's 15 years vs 25 years? thanks chief :)