truth? IG: @real_estate_god
[{"id": "eip9ben", "text": "Had a residential agent the other day tell me residential is just as hard as commercial. Lol.", "replies": [{"id": "eip9okj", "text": "Ons of my buddies got a phone call where someone told him that the property has a low cap rate because it\u2019s vacant", "replies": [{"id": "eipa1ah", "text": "I mean 0 is a low cap rate ", "replies": [{"id": "eipa7bb", "text": "Ya but cmon", "replies": [], "depth": 4}, {"id": "eiq1r69", "text": "The lowest. ", "replies": [{"id": "eiy0gq7", "text": "Oh, I wish.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "eipajmg", "text": "Once saw someone who put in GOI instead of NOI. Cap rate with GOI was 4%. There\u2019s no way GOI=NOI. Property was still sold so what do I know. There are buyers for everything. \n", "replies": [], "depth": 3}, {"id": "eiqkkch", "text": "\u201cUnencumbered by tenants.\u201d ", "replies": [], "depth": 3}, {"id": "eirs9gt", "text": "Is that uncommon? I work in multi and we see low caps all the time for value add or low occupancy/poorly operated acquisitions. People price in the upside as current income isn\u2019t relevant since you\u2019re focusing on your exit cap in that situation. ", "replies": [{"id": "eiudkll", "text": "Cap rate \u2260 NOI", "replies": [{"id": "eiunjqp", "text": "No shit. But cap rate is a product of NOI.\n\nCap Rate = NOI / Purchase Price\n\nProperties with poor operations will have low NOI and a low going in cap rates. Buyers then improve operations and increase NOI. This is why people look at Exit cap rather than just blindly applying the market cap rate to in place NOI. ", "replies": [{"id": "eivgmze", "text": "An exit cap rate is an estimate of the market cap rate at the time of exit. Cap rate, in terms of purchase price/valuation is always determined by the market not the asset itself. Your operating cap rate (unlevered return) will go up as NOI increases. ", "replies": [{"id": "eiw5veo", "text": "Cap rate is the RE equivalent of the discount dividend model which is essentially a more simplified DCF. \n\nYou\u2019re right about exit cap rate. I meant to say investors focus on proforma cap rate.\n\nPeople will pay a premium for a property that has room for stabilization and improved NOI growth via renovation, bringing rents to market, and cutting expenses. If the current owner is a poor operator and a REIT is buying the property they don\u2019t care about current operations, what they care about is where they will operate the property. And that is what dictates the purchase price (present value of the future cash flows aka cap rate) not the market cap rate applied to in place NOI. If this were the case no body would but stabilized properties because they can buy a poorly operated property at a massive discount and in year 2 their yield would be double the market cap rate. ", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "eivrbzb", "text": "How low are we talking here?", "replies": [{"id": "eiw4fdy", "text": "I\u2019ve recently seen properties trade below a 3 cap for value add in a top market. ", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "eipadlw", "text": "The truth is that residential can be just as hard, if not harder, and you can make as much, if not more than commercial, but in terms of knowledge and finance it is elementary vs. college IMO.  Residential requires great people skills, while commercial brokerage needs that, but things like PE, asset management, valuations, etc, don\u2019t.  \n\nI\u2019ve worked with very successful residential brokers, guys pulling in over a million in commission, and they have no idea how to value something outside of looking at residential comps, nor the concept of \u201cwhat would you pay, and how would you back it up?\u201d  I have to walk through the fact that I\u2019m using them for their knowledge, and part of that knowledge is telling me things like area employment, vacancy, number of air bnb\u2019s, etc.  A lot of them just print you out some comps and wait for you to tell them what to offer.  \n\nAgain though, I know guys making million+ in annual commission, so regardless of whether you think residential is the bottom level of real estate, there are thousands across the country making as much as commercial real estate guys.  ", "replies": [{"id": "eiph4f2", "text": "Do you think there are more brokers in residential or commercial that make 1M in commissions annually ", "replies": [{"id": "eipi2vh", "text": "I think much more in commercial, but again, you can become extremely wealthy doing residential in the right markets.\n\nAlso, the barrier to entry for residential is much much lower than compared to commercial.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "eipc25y", "text": "First off, I know for a fact anyone that calls themselves real estate god is an idiot. My favorite quote in CRE is you have to be really unbelievably smart to make a million dollars. But to make five million... You don't have to be that smart.", "replies": [], "depth": 1}, {"id": "eipowml", "text": "\u201cI\u2019m in residential but I\u2019m starting to do some commercial\u201d\nIf I had a dollar...", "replies": [{"id": "eippb1a", "text": "This sums it up. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "eir27c0", "text": "Equally as annoying is when you tell someone you work in real estate and they immediately ask if they should sell their home ", "replies": [], "depth": 1}, {"id": "eivsg7u", "text": "I don't know. What I do know is I don't want their competition or their hours. My residential MLS has 10x as many members as my commercial. And sure, I've worked until 8 PM a couple times, worked about 1 Saturday per month, but good lord I couldn't stand a business where Saturday and Sunday are showtime. I need my family time.", "replies": [], "depth": 1}]