Can you apply the BRRRR method to commercial RE? What are the major differences between Residential and Commercial.
The city I live in is getting eaten alive by out of province buyers. I bid 30k over asking on a triplex and got told to kick rocks unless I could come up with an additional 70k. 

Commercial buildings are still feeling the sting from covid. I could buy 2-3 office buildings and sit on them for 8-12 months if I really had to, and almost every deal I looked into cash flows, the issue is finding tenants at the moment. 

Once I have the building renovated and tenants installed can I refinance the property like I would any other house? 

When I see signs saying they can modify the building for the tenant who typically covers those modifications? The tenant or the owner? 

Are there any good resources to learn about leasing commercial buildings? The only thing commercial I really own is a 33% stake in a 34 unit apartment building. I understand what it takes to maintain and run a commercial building, however I’m new to leasing space to other businesses.
[{"id": "heqxigu", "text": "I'd bring in a CRE Leasing Broker on your first couple of deals. Its worth paying the premium until you're comfortable in this new side of the business.   \nThe Pro Formas are very different. As are the lease structures. (Gross, Mod-Gross, NNN etc). So much more is up for negotiation. Also find out what TI is, and if that's something you're willing to float.  \n\n\nDM me. Great conversation to be had here. Sounds like you're in Canada as well ;)", "replies": [], "depth": 1}, {"id": "her34zv", "text": "A great portion of Commercial/Investment real estate works like this. Mortgages are adjustable so many times pretty much forced to refinance at 5,7 or 10 years. At which point owner can pull money out if value allows for it.", "replies": [], "depth": 1}, {"id": "her3h5g", "text": "The issue finding tenants is the $64,000 question. Solve that and you\u2019ll be fine making tons of money.", "replies": [{"id": "her5tov", "text": "Love how it \"cash flows\" when the issue is finding tenants... sounds like someone's vacancy assumptions are light", "replies": [{"id": "her7ti5", "text": "I mean, it\u2019s self proclaimed beginner post, but yeah, sorely lacking in experience.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "her5w18", "text": "It's called a value-add play, and it's how BRRR was branded. It's a common strategy the BP used as a marketing strategy to help people get started.\n\nThe value add play, and refinancing is cornerstone in CRE.", "replies": [{"id": "heszz1z", "text": "To piggy back here: in residential you improve the physical property to increase the per square foot price. In commercial your job is to push the income up. That's where the value is. You may or may not improve the physical building, depending on what it needs and what makes the most sense, but in short: you'll need to get out of the habit of thinking in price per foot and start thinking in terms of NOI and cap rates. And hire a good leasing broker that focuses on the location and property type you're buying. It may be good to decide on a leasing broker before you buy so you can solicit their opinion of how leasable the property is before you buy it.", "replies": [], "depth": 2}, {"id": "hev8c57", "text": "Yes, it's also worth noting Commerical RE is a whole different realm and you can get chewed up and spat out if you walk into it thinking it's just another residential project. Vacancy in commercial projects is particularly devestating because the NNN lease diverts a lot of costs onto tenants. When you have no tenant in a space, landlord eats the costs for that square footage.\n\nBut yes, \"BRRRR\" is the entire basis of commercial development. The idea is to always wind up with something way more valuable than you started with. I'm about to close on my first true commercial property (have a lot of mixed use with retail below apartments). This one is a 45,000 SF loft warehouse. Just trying to untangle the mess of existing leases and how they are billing CAM and who has what option to expand or needs a lease renewal is a headache. \n\nIn my case I'm buying a 50% vacant building and have another 25% of the building in new tenants lined up before closing. The rent roll will double the day I close on it which effectively doubles the value of the property. I'm buying it at an 8 cap on the current rents, day after closing it will be a 15 cap. That's how you BRRRR in commercial, all I'll have to do is wait for the free rent periods I'm giving the new tenants to burn off and I can refinance everything I put into back out.", "replies": [{"id": "hf2ztpa", "text": "You do not want to go from an 8 cap to a 15 cap.  An 8 cap means you valued NOI at $12.50.  A a 15% cap the NOI is only valued at $6.67.  You lost half your value.", "replies": [{"id": "hf3gptl", "text": "That's not what I'm saying, I'm saying I building I bought at an 8 cap is now a 15 cap at that price because I more than doubled the income. I'm not changing the price side of the equation, I'm changing the income.", "replies": [{"id": "hf4t6np", "text": "You are using cap rates incorrectly.  Cap rates come from an income approach to value called direct capitalization.  Cap rates are set by the market and then used as comps to value NOI.\n\nBoth of your calculations did not result in a cap rate.  The market cap rates would come from sold stabilized properties.  Let's say investors are paying $10 for each possible dollar of NOI.  That is a 10% cap rate.  r=i/v  10%=$1/$10   \n\nSo let's do some simplistic calculations.  There are 2 identical buildings and one is stabilized and the other is 50% occupied.  The stabilized property is capable of $100,000 NOI.  Your half empty property is bringing in $50,000.  The stabilized is worth $1,000,000.  V=i/r  $1,000,000=$100,000/10%.   Now novice investors think the half empty would be valued at $500,000=$50,000/10% but only a fool seller would give you that discount\n\nBoth properties sell at market cap rate (10%) but you need to make below the line adjustments on the half empty property.  So it would be worth $1,000,000 but you figure it will take 6 months to lease up so you lost $50,000 in rents.  It will also cost you money to lease up.  Let's say that is $20,000 and then there is a risk factor that you need to negotiate.  Sounds like you are in a hot market so that is maybe $10,000.  So from the $1,000,000 market value you would deduct $80,000 and pay about $920,000!  A big difference from $500,000.  No seller is going to take you seriously if you try this novice ploy.  And your cap rate stayed the same.", "replies": [{"id": "hf4uxbn", "text": "No sir, you clearly don't know what cap rate is if you think it's \"set by the market\". Cap rate is a rudimentary measure of return on investment, nothing more, nothing less. If your investment starts making more money, then the cap rate you are experiencing on that investment increases. That's basic math, it's NOI/Total Investment. \n\nSure certain property types will generally trade at a certain cap rate in a given market, but that doesn't mean the market is \"setting\" anything, that just means people expect a certain return and aren't willing to deviate from that. If I buy a property with $100k/yr NOI for $1,000,000, that's a 10 cap. If I increase the rents to $200k/year without spending a dime, that same property is now a 20 cap to me. If not, explain exactly how the math is going to work if I'm still into the property for $1 mm and the NOI is now double... You can't explain it because the answer is my cap rate has changed because the NOI changed and the total investment did not. Since Cap rate is a simple formula, when the NOI changes, the rate of return changes.", "replies": [{"id": "hf4wgyr", "text": "The formula is V=i/r  Someone has scammed you into believing a cap rate is a return.  If you increase your NOI by double you want your value to increase by double.  You can cash out and spend that million.  If you go from 10% to 20% you got nothing but a devalued NOI.", "replies": [{"id": "hf4x5eg", "text": "I'm a professional investor, I know how it works. No, cap rate is a measure of return, don't know what to tell you if you think the return doesn't change when the value of a property changes by $1 mm...\n\n\nLol, read the investopedia article on it, literally the first fucking sentence genius:\n\n\n&gt;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 generated on a real estate investment property.\n\n\n\nhttps://www.investopedia.com/terms/c/capitalizationrate.asp\n\nI'm right, you are wrong, move in with your day. You might want to brush up on these concepts before investing actual money in RE. Something I've been doing very successfully for over a decade...", "replies": [{"id": "hf50mau", "text": "Yeah, that investopedia definition is 100% wrong.  Again, if a cap rate was a \"return\" why can't you explain why twice the \"return\" sells for half the price?", "replies": [{"id": "hf52rek", "text": "&gt;Capitalization rate is the estimated percentage rate of return that a property will produce on the owner\u2019s investment.\n\nhttps://www.bankrate.com/glossary/c/capitalization-rate/amp/\n\n\n&gt;Capitalization rate shows the potential rate of return on the real estate investment. \n\nhttps://m.economictimes.com/definition/capitalization-rate/amp\n\n&gt;\u200b A cap rate measures a property\u2019s natural rate of return for a single year\n\nhttps://fundrise.com/education/understanding-cap-rates-what-smart-investors-should-know\n\n&gt;If you\u2019re new to real estate investing, a cap rate\u2014short for capitalization rate\u2014is a primary metric we use to forecast the ROI from our property.\n\nhttps://www.stessa.com/blog/real-estate-investors-guide-to-cap-rates/\n\n\n\nHow many more sources do you need oh wise sage of real estate?", "replies": [{"id": "i543d07", "text": "One correct one would suffice.  Seriously, if those definitions were correct then why does half the \"return\" sell for twice the price?  Humming Jeopardy theme....", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "hf4wodz", "text": "Cap rates do not measure \"returns\".  Think about this example and answer my question.  A seller in a 10% cap rate market has $100,000 NOI.  He can sell that for $1,000,000.  $1,000,000=$100,000/10%.  In a 5% cap rate market a seller with $100,000 NOI can sell for $2,000,000.!! how can TWICE the \"return\" sell for HALF the price?  I guarantee you cannot answer that question.", "replies": [{"id": "hf4xuj5", "text": "I can't answer that because it's gobbly gook that makes no sense. Here's how that question reads:\n\n\"How can you rate if return when the caprate $1 million /5% equals NOI? TWICE sell for Half the price that is more than market 10% cap?!\".\n\nLiterally you are babbling about something you clearly do not understand.", "replies": [{"id": "hf508x9", "text": "Have you heard of IRV?  \n\nThis will be real simple.\n\nV=i/r\n\nA  $1,000,000=$100,000/10%\n\nB  $2,000,000=$100,000/5%\n\nYou are saying the cap rate is a return.  Wouldn't 10% be twice the \"return\" of 5%.\n\nSeller A has TWICE the \"return\" but can sell it for only HALF of what the guy is getting for the lower \"return\".\n\nSo, why is TWICE THE \"RETURN\" selling for HALF the price?", "replies": [], "depth": 9}], "depth": 8}, {"id": "hfnx6ny", "text": "The cap is 15, based on his purchase price, until he sells it.  He'll sell it as an 8 cap, but until then, he is holding it as a 15 cap.", "replies": [{"id": "hfo0ddl", "text": "Where did the 15 cap come from?  How can he sell it at an 8 cap?  These are just made up numbers.  Cap rates tell you what NOI is selling at in a certain market, for a certain asset class at a certain time.  The formula is V=i/r   The Value is the time point that you are valuing the property.  The i is the NOI the property is capable of producing and the r is the cap rate that similar properties NOI has sold for.  He can divide any number by any number but there is a specific definition of how a cap rate is calculated and used and he is nowhere close.  It's just jerkoff numbers.", "replies": [], "depth": 9}, {"id": "hfs4f45", "text": "LMAO this guy is still at it with his nonsense.  I haven't been on reddit for a month because I had a few deals to work on DD and close.  Came back to Reddit today and he's still spouting the same BS that I was trying to correct him on. No point in trying to teach something to someone unteachable, it's a waste of time.", "replies": [{"id": "hfsbj6m", "text": "I just reported him for misinformation.  Maybe mods can just ban him?", "replies": [{"id": "hfsw0qt", "text": "I welcome any discussion on the accuracy of my posts.  Or u/imaccaro or u/Pokemeister92 could just participate in the discussion.  Up for the challenge guys?", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "hf576e8", "text": "Cap rates come from analyzed closed sales.  Where do you think they come from?", "replies": [{"id": "hf5qew3", "text": "Lol it's an equation, has nothing to do with closed sales. You can analyze a closed sale using the cap rate formula, but you can literally analyze any deal with this formula which is kinda the point...", "replies": [{"id": "hf5qz0z", "text": "You need two of the inputs.  Where are you getting them.  You say you are a professional investor but you seem to just be pulling numbers out your rear.\n\nIf you have invested in commercial properties are you saying you don't know what a cap rate comp is?  Seriously, can you explain where your numbers come from?", "replies": [{"id": "hf5sjn3", "text": "I'm not talking about comps numbnuts, I'm talking about proeprties I own. If I pay $1 mm for a $100k NOI, that's a 10 Cap. I have two inputs. \n\nIf I now raise the rents to $200k NOI a year, I now have a 20 cap since I still only paid $1 mm for that property. \n\nThese are round numbers for ease of explanation. In reality it's like this:\n\nI paid $1.15 mm for a property producing $110k NOI. I moved in two tenants and raised the rents so the NOI is now $230k. I spent $200k on tenant build outs so my total investment is now $1.35 mm. \n\nMy cap rate at purchase was 9.5 since $110,000/$1,150,000 = 9.5%\n\nMy cap rate is now 17 because $230,000/$1,350,000=17%\n\n\nThe cap rate of my investment is not static. It changes with the amount of improvements I need to put into it (increasing denominator) versus how much I can increase the NOI. Yes, the market will probably buy my building at a much lower cap rate, but I'm not the market, I already bought it at a 9.5 cap. My goal is to own it at 15+ cap because that's how you add value in RE.", "replies": [{"id": "hf5tizw", "text": "That is not how you value add.  What value did you add?  You are saying your value is still the same.  That is not value add.", "replies": [{"id": "hf5ts32", "text": "No, I'm saying my capital invested is the same. I'm not going to act as if I invested $2mm when I only invested $1 mm. Why would I do that? Why would I pretend my ROI (which is what cap rate is) is lower than it actually is?", "replies": [], "depth": 12}], "depth": 11}, {"id": "hf5uro5", "text": "&gt;If I pay $1 mm for a $100k NOI, that's a 10 Cap. I have two inputs.\n\nI can agree with that.  But you can't tell me where the million dollar purchase price came from!!!  So it is just out your rear.  But if real investors are paying $500,000 for a possible $100,000 NOI (20% cap rate) then YOU overpaid by $500,000!!\n\nThe \"market\" will be laughing at you and then where is YOUR 10% \"FAKE RETURN\" now?  Hint:  it never was there.  You got scammed again.", "replies": [{"id": "hf5v55k", "text": "I literally just gave you the actual numbers, I bought a property for $1.15 mm and increased the rents significantly. This is what I do for a living a d I've made millions of dollars doing it. I don't have time to explain simple concepts like this to an obvious Noob on the internet...", "replies": [{"id": "hf62ife", "text": "With all your hemming and hawwing you could have answered my simple questions if you could.  It is obvious that you don't understand basic commercial real estate valuation.  You probably paid a lot for a guru to misinform you and it is hard to realize you have been scammed and talking ignorantly for the last 10 years,  You shouldn't be mad at me.  I'm just trying to help you be a better investor.", "replies": [], "depth": 13}], "depth": 12}], "depth": 11}, {"id": "hglz6fd", "text": "&gt;I'm not talking about comps numbnuts,\n\nI'm dying. I remember reading this guy's similar comments from like a year ago and he still doesn't get it", "replies": [{"id": "hgn0kbk", "text": "LOL  A lot of \"professional investors\"  use the phrase numbnuts!\n\nYou notice u/Louisvanderwright and u/imaccaro cannot answer the basic questions put to them and then go all Karen and disappear.", "replies": [{"id": "hgn1h1a", "text": "\"neither louisvanderwright and imaccaro cannot answer the basic questions\"\n\n\nYou realize you just said that we are both incapable of not answering the question right? Your grammar is so bad that you just said the opposite of what you meant? Or did you mean to say we both have fully answered your questions and schooled you hard?", "replies": [{"id": "hgn3m5n", "text": "NOPE, because you are still evading the questions.  Geez, professional investor my \\*ss.  I did make a mistake while I was looking for u/immacaro.  Seems he got banned trying to get me banned.  Hey, I'm willing to admit to a mistake.  You?", "replies": [], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "hfiblpa", "text": "CoC with or with out financing is a return.  That is what you are mixing up with cap rates.\r  \n\r  \nLast I looked Class A office in Philly was selling at a 7% cap and in SF for a 4% cap.  Do you really thin Philly has almost TWICE the return as SF?!  NO WAY   One reason is that rents are about $20 a sq ft in Philly and $80 sq ft in SF.  Since capex is not factored in to direct capitalization it would take about 4 times the sq ft to produce the same amount as in SF.  Now think of all the capex that is based on sq ft.  So in both cities you are getting $100,000 NOI but in Philly capex is going to cost four times what it does in SF.  That is one reason that investors will only pay $1,428,600 for $100,000 NOI but in SF that $100,000 NOI sells for $2,500,000.  Cap rates measure value.", "replies": [{"id": "hfifbmj", "text": "I mean Philly literally does have twice the return as SF if you are buying at market prices. How do you not understand this? The difference is a result of different risk premiums being priced in. Philly has lots of disinvested areas and moderately growing economy. SF is basically out of buildable parcels and has massive tech companies gobbling up every inch of available space. \n\nSo people are willing to accept a lower return (Cap rate) in SF than Philly. It's that simple.", "replies": [{"id": "hfifz27", "text": "What about that 4X capex that will be clawing back that Philly NOI?", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "hfjmap4", "text": "How does that happen?  If you are looking at a \"deal\" then what is the cap rate analyzing process?", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "hf57js1", "text": "&gt;If not, explain exactly how the math is going to work if I'm still into the property for $1 mm and the NOI is now double.\n\nr=i/V  You are doing a calculation where r=NOI/the price I paid for the property years ago.  That sir, is not a cap rate.  Even investopedia can't come up with that malarky.", "replies": [{"id": "hf59pzf", "text": "V=i/r\n\n$1.000.000=$100,000/10%\n\n$2,000,000=**$200,000**/10%\n\nThere's the math!  How much did the guru scam you for his BS class?", "replies": [{"id": "hf5r5dy", "text": "Yeah except if I paid $1,000,000 for a property I don't suddenly have to pay another $1,000,000 because I raised the rents. Clearly you don't actually own any property since this is obviously mental gymnastics for you. \n\n$100,000/$1,000,000=10%\n\n$200,000/$1,000,000=20%\n\nThe denominator doesn't change because I don't repurchase the property for more money just because I leased out the vacant space or raised rents. You clearly have no idea how any of this works...", "replies": [{"id": "hf5sndf", "text": "$200,000(increased NOI after purchase)/purchase price back in time is NOT a cap rate.  It is pretty much a meaningless number.  The correct way is to realize your NOI is now worth $2,000,000 if investors are still paying $10 for NOI.  \n\nNow what if investors were only willing to pay $2.50 for NOI?  $200,000\\*$2.50 is now only worth $500,000.  You increased your NOI by $100,000 and still lost half your value!", "replies": [{"id": "hf5ssgm", "text": "It's actually a very meaningful number. Are you telling me it's meaningless that my return is now 20% instead of 10%? WTF are you smoking? Yeah, the fundamental ROI of my investment is a meaningless number...", "replies": [{"id": "hf5uyxe", "text": "Cap rate is NOT ROI.  That is your problem.  You are confusing the meaning and functions of commercial real estate terms.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}, {"id": "hf5t34h", "text": "You still can't explain how you got your purchase price or explained why Sellers with twice the \"return\" are selling at half the price.", "replies": [{"id": "hf5tdu6", "text": "What are you taking about? No one is selling it moron, I own it, I increased the income, now the cap rate for me, as someone who already owns the property, is significantly increased. This is funadmentally how real estate development works. There is NOTHING about cap rate that requires a sale for you to use it. It's utter nonsense that you are babbling...", "replies": [{"id": "hfgu0pe", "text": "Like technically you are correct but colloquially u/honobob is right\u2026\n\nWhen discussing in a conversation, if you tell people you have a \u201c15 cap\u201d you sound kind of\u2014-wet behind the ears\u2026\n\nWhen you are referring to your \u201c15-cap\u201d, you are actually talking about your Yield or Cash on Cash Return. \n\nThe thinking is as follows: \n\n1. Purchase at a 7-cap\n2. Receive a 15% yield/cash on cost return\n3. Sell at a 5-cap", "replies": [{"id": "hfh2339", "text": "Except only a \"wet behind the ears\" noob sells properties. If you have banking relationships then you never sell, only accumulate. \n\nAnd no, there is no rule that you can only use cap rate for measuring market appetite for stabilized properties in a sale. Talk about sounding clueless, cap rate does not have to be associated with a sale, plain and simple. It's a quick and dirty measure of return, there are no rules on how you need to use it. \n\nAnd no, I don't tell people \"I have a 15 cap\" I tell them \"bought this at a 8 cap, but realized a 12 cap after  year 1\". I literally do multi million dollar deals, often tens of millions. I have never once had someone stop and say \"lol wut, that's an amateurish way to use cap rate\" and I've dealt with clients who a billionaires that own hundreds of millions of dollars worth of suburban office real estate. \n\nWhy has no one ever chided me for this? Because you and HoboNob are clearly the uneducated here. I use cap rate in this way because much more successful people than myself use it that way. It's not that my internal proforma is an Excel that says \"hurr durr cap rate\" and has like three lines. Its how people who have too many properties and too little time to sit and discuss deals in depth quickly communicate information about returns. Meanwhile Hobo Knob doesn't even think cap rate indicates return which is the stupidest thing I've heard in a lonnngg time.", "replies": [], "depth": 13}], "depth": 12}], "depth": 11}, {"id": "hh78j38", "text": "New to Reddit but this sub is awesome! CAP RATES 5 TIMES THE Nth POWER GOBBLY GOOK !!!!", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hhb9c53", "text": "Just going to chime in here and say the going in return on cost (ROC) is going from an 8 to a 15, which is a cash yield measure on total property cost. The cap rate does not change, or if anything it decreases because less leasing risk now at the property. Cap rates are a valuation measure set by the market and are a function of how much investors are willing to pay for a property based on its income. They are not a going-forward measure of your return.", "replies": [{"id": "hhbaw6j", "text": "No, cap rate is NOT set by the market. Just Google it already people. Cap rate can be used in a variety of ways. It is a simple equation: cap rate = NOI/price. It's got nothing to do with markets. Markets tend to price certain cash flows at certain cap rates, yes, but that's not the definition of cap rate, the simple equation I posted above is. Period. Here's a simple question for you, if cap rate is set by markets, then how do some people manage to purchase properties at cap rates that differ from the going market cap rate? Oh yeah, because people using cap rate to describe market pricing are doing jsut that, using cap rate to analyze the market. The market is not setting some cap rate, human beings are using cap rate as a tool to analyze the market.\n\nIf someone uses that equation to measure internal returns or place values on their cash flows, it's got nothing to do with market pricing because nowhere in that equation does it say \"cap rate = price market is willing to pay\". So please stop affirming this nitwits blather.", "replies": [{"id": "hhbcnz9", "text": "The market price for an asset is the highest price a buyer is willing to pay. Every building has its own intrinsic market cap rate, which can differ from the market average. Cap rate is just next year\u2019s NOI divided by the value today. Value is what the market is willing to pay for your asset. Value is not the same as what your basis in the asset is. The market might shift and the cap rate for your asset could change independent of what happens to your income - meaning the value of your asset if you sold it today would also change.", "replies": [{"id": "hhbew01", "text": "Value is impossible to calculate for any given asset hence the ineptitude of appraisers. The only time a value is determined is when a sale actually occurs. The notion that cap rate is some sort of market derived number is therefore nonsense because the actual value varies wildly based on any given sale. Cap rate is a formula, it has nothing to do with markets, it has to do with the value you choose to assign an asset at any given time and the cash flow of that asset. It's got nothing to do with the market. If I want to use it to compare what I paid for the property versus the new cash flow after I add value, that's just as legitimate as someone using it to analyze sales comps.", "replies": [{"id": "hhbtn0o", "text": "&gt;The only time a value is determined is when a sale actually occurs.\n\nDing Ding Ding  And that is when professional third party companies analyze the sales and report to the market that recent properties are selling at a 10% cap rate based on the actual sales.  Then even numbnuts can say I will pay you $10 for each dollar of NOI unless you will give me a better deal.  Then seller will say NOPE!\n\n&amp;#x200B;\n\nhttps://www.realized1031.com/glossary/valuation-income-approach-direct-capitalization", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "hhbt93v", "text": "**Here's a simple question for you, if cap rate is set by markets, then how do some people manage to purchase properties at cap rates that differ from the going market cap rate?**\n\nBecause the market changed!  Or because people like you don't know what a cap rate is so in a 10% cap rate market a savey investor buys at a 10% cap rate which is what all the other smart investors pay ($10-$1/10%) and then they sell to smucks like u/Louisvanderwright at a 8% cap rate so $12.50=$1/8%   So just a $50,000 NOI u/Louisvanderwright overpaid $125,000!!!   And he is a real estate \"professional\"!  Like taking candy from a baby.", "replies": [{"id": "hhcsfg3", "text": "Lol, and here comes the hobo knob, just in time to share his \"theories\" with us. Oh look, I found his website:\n\nhttps://timecube.2enp.com", "replies": [], "depth": 6}], "depth": 5}, {"id": "hhdugm4", "text": "&gt;it's got nothing to do with market pricing because nowhere in that equation does it say \"cap rate = price market is willing to pay\"\n\nCap rate = i/V  Where do you think the V is coming from, duh the market.  The cap rate is equal to the NOI/the Value that the seller and buyer (you know, the MARKET) agreed to trade the NOI for.  LOL", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hero60w", "text": "It works fine if you know what you are doing.  8 to 12 months to lease an office property isnt a lot, you will have to pay commissions and probably some ti too.\n\nFinding properties that cash flow well with a theoretical tenant isnt hard.  Finding the theoretical tenant is ;)", "replies": [], "depth": 1}, {"id": "hesph18", "text": "I cringe every time they use this term for value-added. Like when they say \"they're hacking real estate\" by buying a duplex and living in one of the units.\n\nCommercial real estate is very specialized and most people look to work in an area that they have really good knowledge. I think to start, you need to know basic 4 things to evaluate a commercial deal:\n\n1- How much it cost you to acquire the property\n\n2- what is the current demand for this product (ie how much can you charge for rent and how long it would take to fill it up).\n\n3- How much it would cost you to fill it up (improving the place and/or hiring agents)\n\nand finally, what is the cap rate for this type of product stabilized. In other words, for how much can you sell it.\n\nThe problem with commercial real estate is that information is not as easy to get as it is in the MLS for housing. You either have a costar subscription (which costs thousands of dollars a month) and/or have a robust network in your town to understand the market and trends. \n\nIf I were to do my first add-value project, I would try to do a strip mall. They tend to be easy to manage, there are plenty of good mom and pop businesses that are recession and internet proof and are very straight forward.", "replies": [{"id": "hessgkp", "text": "Agree with you but curious on strip mall comment. I hear often those are terrible investments especially post Covid. Would love to hear otherwise if you\u2019d be happy to explain. Also, what type of businesses that mom and pops have are recession proof or internet proof?", "replies": [{"id": "hesthvx", "text": "&gt; I hear often those are terrible investments especially post Covid.\n\nWeird, I think everywhere besides office and hotels ended being stronger post covid. You might be thinking about fashion and power malls with big anchors. Even those are becoming hot due to people buying them cheap for redevelopment.\n\nIt depends on the tenant mix. For example, barbers, beauty salons, restaurants, and tattoo shops are great tenants while a clothing store or any company that sells goods would be riskier. You might even be lucky and attract a national tenant.", "replies": [{"id": "het4wmp", "text": "Good insight. Appreciate it. I\u2019m mainly in the Mobile Home Park space for reference.", "replies": [{"id": "hex65gz", "text": "Mobile home parks are a great investment.", "replies": [], "depth": 5}], "depth": 4}, {"id": "hethnjv", "text": "Piggy backing off this - strip malls have become so highly sought after because there are no large anchor tenants that the smaller tenants depend on and it\u2019s less risky for a landlord. It is a lot easier to replace a tenant in a 15,000 SF strip center when the suites are all 1,200-4,000 sf versus when you have a 25,000 SF retail anchor that goes out and you need to fill that box. There are only so many users that large. Plus when your anchor tenant goes out it\u2019s like a domino effect and sometimes the small shops fall too. \n\nGrocery anchored centers are a bit different as they are still doing exceptional but a lot of my clients are focusing on acquiring un-anchored strip centers for the above reason.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hfih133", "text": "What are you even talking about? Why would capex be higher in Philly? It's the opposite if anything, construction costs are absolutely lower there...", "replies": [{"id": "hfirzkh", "text": "Because if their rents are only $20 sf but SF gets $80 a sf then that $$10 sf carpet with take 50% of the Philly rent but only 12.5% of the SF rent.  Geez, are you sure you are in real estate?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hfye11x", "text": "Yes, value add.", "replies": [], "depth": 1}]