Been waiting for this video for a while, great job explaining. I would love to see another one diving into the intuition behind cap rates and their relationship to multiples when talking about the return on the investment. It seems like there are situations where people will use a lower number as a higher return, and it has something to do with the inverse of cap rates?
Cap rates don't represent YIELD. All a higher cap rate tells you is that investors will not pay more for a dollar of NOI than in a lower cap rate market.
@@ryan6541 NOPE! Cap rates can be indicative of risk but do not measure risk. Class A office was selling at 7% in Philly and 4% in SF. The "risk" is probably about the same. It is about profitability. Educate yourself, ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-vJXsW1ER5hw.html
@@ryan6541 Cap rates come from an income approach to value called direct capitalization. It is a valuation metric ONLY. A 10 xcap means investors have paid $10 for a possible dollar of NOI and $20 in a 5 cap market. I challenge you to show me which property has a higher yield based on the cap rate.
This channel has become my new go-to for learning about basic & intermediate CRE concepts. I recently invested in your classes and I am already applying the skills learned in my job. I am very grateful for your content - keep up the great work!
Could you kindly give your opinion why the office yield is higher than that of residential in US. The office properties seem to be more stable due to NNN mid long term lease and more simple to manage/operate, which leads to lower yield.
Thanks, Liam! Just to clarify, are you referring to having one major institutional partner vs. many smaller investors in a deal? Let me know - thanks for the feedback!
@@BreakIntoCRE Correct. Only in my case I’m a startup GP and my potential JV partner is an individual. How should I be thinking about this vs trying to syndicate? How do legal fees compare, fee structure, efficiency of raising capital, investor management software expense, etc. etc.
This is incorrect. Cap rates come from an income approach to value called direct capitalization. It is NOT a "return" metric. In a 10% cap rate market NOI has sold for $10 per possible dollar, In a 5% cap rate market they have paid $20! If a 10% was a "return" then why is twice the "return" of the 5% cap rate market selling for HALF the price? It doesn't because cap rates measure value, not return.
You may be conflating expected future return of the deal and current yield in your 5% and 10% return comparison. The video refers to current yield when describing cap rates and not expected future returns as you intimate in your comment. Very slight difference!
No, the cap rate measures what investors have paid for NOI. The formula is V=i/r. $10=$1/10% or $20=$1/5% You cannot accurately state which purchase will be more profitable BUT I can state the VALUE paid in each case. You are being scammed!
@@rivernorthhomes Yeah, it would be great to pay $10 (10% cap rate) for a dollar of NOI but if sellers are getting $20 (5% cap rate) then you need to figure the reason. Usually it is because the property will be more profitable. Buying cheap does not mean more profitable.
Great insight as always! Would love to get a video breakdown of multifamily brokerage commissions, in particular how much a broker actually brings in from 65 bps fee on a large deal after splitting with company and team members. Really just further detail into the pay structure of associate brokers vs VPs vs managing directors.
Thanks Justin! LOVE YOUR VIDEOS. How do I determine what the cap rate should actually be vs what the NOI is telling me the cap rate is. What are general KPIs? For example if I get a deal and they're underwriting at 28% expense ratio. (zero management vacancy's at 3% and maintenance at 3%) I know I need to make adjustments closer to 40-50% and work from there. For example picking up a class C deal with median income of 40K at a 5 CAP = stinky deal vs picking up a class B (B+) median income of 120K 5 CAP = I'd buy that every day of the week. Thanks for all your content it's AWESOME!
How to determine the value of an office based on the set of assumption . This is single tenant office building Target IRR - 20% Annual rent - 100000 Annual rent increase -5.0% Operating Expenses (%rent)- 30% Financial info Loan to Value Ratio - 50% Interest rate - 3% Holding Period (years) - 5 Exit cap rate - 5.0% IRR hurdle - 20% Please do help
Its worse here, our economy is like a flailing fish, fighting for its life. The normal state of the U.S. economy is actually very bad. Because of this it goes into convulsive spasms fighting to grow any way it can out of desperation. Tricks, gimmicks, rule changes try to stimulate the economy and prevent it from falling but they only bring temporary relief to people since, when you factor in inflation we are declining.
Hi Thomas, I haven't gone through the REFAI curriculum personally, so I can't advise on the program. REFM is a well-known name in the industry, though, so it will likely be a good learning experience to go through the course. Good luck!
Hey Justin, I can't seem to find the video you made about the different roles within CRE and their compensation and pros/cons. Can you help? It included debt analyst and all the others. Thanks!
I am currently holding stocks worth of 200k in a savings account waiting to invest in another huge opportunity. I've been thinking about going into real estate. Please is it a good idea right now ?
@@gwendymolly5953 AI companies are said to be overvalued and might cause a market correction, I think it’s best you reach out to a proper fiduciary for guidance
@@Blitcliffe You should De-risk your portfolios, shore up your core holdings, and take some profits while balancing your portfolio allocations. I’d also suggest you go with a managed portfolio, but even those don’t perform so well, so it’s best you reach out to a proper fiduciary to guide you, that’s what works for my spouse and I. We've made over 80% capital growth minus dividends.
@@MiddleclassAmerican-7220 I've been looking to get one, but have been kind of relaxed about it. Could you recommend your advis0r? I'll be happy to use some help.
@@dannielleemarie Amber Kay Wright has always been on the top of my list.. She is regarded as a genius in her area and well knowledgeable about financial markets. I highly recommend her if you want excellent collaboration.
Need help understanding this further. super newbie. I have a commercial property I bought with SAB loan in a opportunity zone. I bought it for 430k and owe 350k and valued around $550k. I want to buy a bigger commercial building that cost 1.4 million and sale mine. I think that building is a little too expensive and it has an Capital rate of 5%. I am a novice with no experience. Any advice on this? HELLLPPP @breakintoCRE
The building DOES not have a 5% cap rate. The seller wants you to pay him $20 for each possible dollar of NOI. $20=$1/5% LOL If comparable properties have sold at a 10% cap rate that means they paid $10 instead of $20!!! $10=$1/10% These fake Gurus like Justin want you to believe that their fake cap rate is a "return" so of course you would want to pay them $20 for something only worth $10! Don't be a chump!
