Some people bought houses for 250k-350k in 2011 and renting for $3000. Not a lot lower than the 1996 buy. Sometimes you do not need to hold very long if you are lucky
Regarding appliances, you have tax amortization schedule. But, you need account average for an year.
If vacancy reduces income, naturally you need to account vacancy, but fairly accurate vacancy.
There are two ways to calculate Cap rate. 1) With assumption 2) with actual values (tax filed). The second one is more reliable than assumption one as many assumptions are balpark values.
For example, you said âallow 1 month vacancy for each yearâ. Never faced vacancies, more than 5 to 7 days, for the last 10 years except first month after purchasing a home. This is mainly to make it as move in condition gap.
Cap Rate is an indication to see whether you are getting right cash flow return on your investment. You need to have fairly accurate value to get cap rate. Otherwise, you may see low cap rate and will miss buying a real estate !
In cap rate, all income and expenses are actually calculated except mortgage interest.
Could be a phenomenon in SV. So far, my rental in SV rent out immediately and didnât have a gap between change of tenant. But in Austin, need 4-6 weeks* to rent out the first time, so far, only one change in tenant for one of the house, take about 2-3 weeks.
*My property manager is extremely strict in his tenant screening , not easy to pass. So far, mainly bought during the slow months of purchase/ rental i.e. late fall to winter.
Well Tampa cap rate is still pretty good. Not 16% good. More like 10%. I need to check with my buddy in Sarasota if thereâs any gotcha owning houses in FL.
Letâs say I invest $1M in Tampa with cap rate at 10%. So annual income is 100K.
I can deduct depreciation from that income and donât pay income tax on that part. Straight line depreciation at 27.5 years means every year I can deduct 36K.
Letâs assume my federal + income tax rate is 40%.
So after tax income out of that 100K = 64K x 60% + 36K = 74.4K
Thatâs equivalent to a 74.4K / 60% = 125K of W2 income.
Just would like to add a point for more effective comparison
IMO, Cap rate is like a dividend income and gives cash flow. In addition to cap rate (cash flow), we also need to account appreciation percentage (not 2008-2011, but over a period of 20 years year over year average appreciation).
Combined cap_rate+appreciation_rate provide the exact measurement, which location grows fast.
For example, south san jose cap rate is 5%, but appreciation is 4.5% while west san jose cap rate is 3% and appreciation is 6.5%. In this case, both are same.
True. But cap rate is kind of set in stone, unless rents drop significantly in the future. Appreciation is more varied, and history canât be relied on to repeat exactly. I want to have some cash cows in my portfolio for balance. Thatâs the whole point of this exercise.
Self storage deals are pretty scarce. In the entire state of California there are only 27 deals listed on loopnet, and half of them donât list the cap rate. Of the 14 that do the median is 7.1%. Unless the ones that donât list cap rates are significantly higher than the ones that do, cap rate is not that much different from apartments in Stockton or Sac.
I am still scared of mobile home parks. Yes, their cap rates are much higher. I stumbled on a forum site just dedicated to mobile homes. People looking for deals and opinions can find great resources there
When we do business, have it is tax friendly state and also avoid long distance states like Texas and Florida.
We can account near by states like Oregon, Washington,Nevada or Arizona.
Quite a few investors between SF and SJ have discovered Santa Cruz County as a buying opportunity for multifamily. I got cold calls from 3 agents between September and November, each had buyers and called me specifically about one or two of the multifamily properties that we own.
Their script is like this:
Cold call owner who (hopefully) has not raised rents in 10 years e.g. $1100 for 2BR.
Based on the low rent, convince owner to sell the property (4 to 10 doors) for ~$200k per unit.
give notice to all occupants
remodel the units for $40k each
rent those 2BR for $2500
The value of that property has just gone up 50%+
That said, they failed to complete step (2). Lots of our rents may be half of market rate, but we wonât give away our stuff.