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Rainmaker
1,562,917
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
CEO of Vision Drive Realty - Coastal San Diego

I'm an investor, not a lender, not quite sure if this what you are after, but I use a CAP Rate Analysis and where am I breaking even on the cash flow, then how that interim affects my debt to income to the break even. This allows me to decide whether or not it's a good deal. Does this help?

Nov 13, 2016 10:50 PM
Rainmaker
1,731,927
Sandy Padula & Norm Padula, JD, GRI
HomeSmart Realty West & Florida Realty Investments - , CA
Presence, Persistence & Perseverance

I rely on the Net Present Value when applied towards the income over the fixed period and residual value.

The CAP Rate is a good please to start, as well, but my investors want a more accurate view.

Nov 13, 2016 11:06 PM
Rainmaker
1,245,039
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

People act on instinct not based on facts.  When I tell them the cap rate is high (>5.5%, typ 2%) and has postitive cash flow, they react very different.

They go to Texas, Nevada and tell me they can get a home for $90K in the slum getting no rent and should listen to me in their own turf.

Nov 14, 2016 01:01 AM
Rainmaker
1,617,976
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

CAP rate is a good starting point

Nov 14, 2016 07:54 PM
Rainmaker
4,320,142
Praful Thakkar
LAER Realty Partners - Burlington, MA
Metro Boston Homes For Sale

Annette Lawrence , Palm Harbor, FL 727-420-4041 - not there, yet. Though some 'training classes' taught me, it should be CAP rate.

Nov 14, 2016 03:26 PM
Ambassador
3,754,043
Patricia Kennedy
RLAH@properties - Washington, DC
Home in the Capital

My investors look at their cash flow.

Nov 14, 2016 12:44 PM
Rainmaker
3,988,013
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

Around 6 works in my area but it does depend on many more factors and local indicators as to whether it is a good investment.

Nov 14, 2016 10:49 AM
Ambassador
2,684,960
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Cap rate and internal rate of return.

Nov 14, 2016 09:28 AM
Rainmaker
7,907,633
Roy Kelley
Retired - Gaithersburg, MD

This is just one of many factors.

Nov 14, 2016 07:50 AM
Rainmaker
1,231,853
Mary Yonkers
Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA
Erie/PA Real Estate Instructor

Income property is not my expertise so I will defer to others.

Nov 14, 2016 06:21 AM
Rainmaker
1,713,076
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

It is not based on income, it is based on cap rate, cash on cash, and internal rate of return which also an eye on appreciation. No one in my 26 years of doing this suses the formula you are suggesting. 

Nov 14, 2016 06:00 AM
Rainmaker
2,791,060
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

its subject to local formulas and rules of thumb with variable factors

Nov 14, 2016 04:53 AM
Rainmaker
1,064,226
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

For a SFR, you can use NPV or cap rate -- but one of my favorite investor clients uses a simpler metric that works for him . . . 100x the monthly rent, gross. That usually ensures him a double-digit yield after costs.

Nov 14, 2016 02:48 AM
Rainmaker
4,273,107
Paul S. Henderson, REALTOR®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

I use the cap rate analysis also.

Nov 14, 2016 02:36 AM
Rainmaker
1,510,903
Ryan Huggins - Thousand Oaks, CA
https://HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

The ones I've purchased were converted by me into income producing.  Haven't gotten to the other aspect yet.

Nov 14, 2016 01:47 AM
Rainmaker
3,986,308
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

I let my accountant figure that all out.  That is why he gets the big bucks!

Nov 14, 2016 01:45 AM
Rainmaker
4,800,132
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Annette, I leave this analysis for my commercial broker associates.

Nov 14, 2016 01:21 AM
Rainmaker
5,278,205
Wayne Martin
Wayne M Martin - Oswego, IL
Real Estate Broker - Retired

What is your investment objective? With interest rates and cap rates so low presently, the future could be a shocker! Tread carefully! 

Nov 14, 2016 12:30 AM
Rainmaker
4,934,338
Richard Weeks
Dallas, TX
REALTOR®, Broker

I think it depends on your investment strategy.

Nov 14, 2016 12:08 AM
Rainmaker
4,434,177
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I will look for the answers here.

Nov 13, 2016 10:56 PM
Rainmaker
993,752
Jennifer Mackay
Counts Real Estate Group, Inc. - Panama City, FL
Your Bay County Florida Realtor 850.774.6582

NPV works for me - I find the cap rate very misleading in my area however

Nov 14, 2016 09:55 PM
Rainmaker
3,071,860
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty

Our investor Buyers look for CAP rate of 8 or better

Nov 14, 2016 09:09 PM
Ambassador
5,291,581
Debe Maxwell, CRS
Savvy + Company (704) 491-3310 - Charlotte, NC
The RIGHT CHARLOTTE REALTOR!

CAP rate analysis as others have said.  Most of my investors are buying to rehab and re-sell though.

Nov 14, 2016 12:25 PM
Ambassador
6,459,469
Bob Crane
Woodland Management Service / Woodland Real Estate, KW Diversified - Stevens Point, WI
Forestland Experts! 715-204-9671

I have a homemade spreadsheet that includes the cap rate, condition of the property and several other factors.

Each property is fed into this and compared.

If they pass this and my instinct test then an offer is written.

Nov 14, 2016 08:40 AM