First larger multifamily, 9 unit building in Virginia beach
Good morning,

Just placed an offer on my first larger multi. It’s 8 2 bed units and 1 efficiency that is being used as storage. 
I’ll be converting that 9th into a summer rental unit that I can use and others.  

Since this is my first time getting a commercial loan, what is the typical due diligence period I would get. It was my understanding that I could get up to 60 days to review it? I live out of state so I asked for 30 but they said they can only do 10. I’ll make it work but would prefer more to line up contractors to walk with me to give me prices. 

It’s currently a 4.5 cap but the rents are super low. Market is 1350 and they are renting for 850. With that and a few other things I’ll get it to a 9.5 cap. There’s tons of value adds and it’s in a prime up and coming location.
[{"id": "gzv8ysz", "text": "10 days isn\u2019t enough time, 30 days is reasonable. Good luck, have fun!", "replies": [{"id": "gzvasd6", "text": "Just to second this: It took me two weeks just to get a property jacket from the city!", "replies": [], "depth": 2}, {"id": "gzvpp88", "text": "Exactly my thinking. I don\u2019t think it\u2019s enough time. \nI put a low ball offer in. They may not even except it. If they do I\u2019ll take it from there.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gzv8yum", "text": "It just depends on the other offers at the table. But yes 10 days is fairly standard. Ask for two weeks and a longer financing period. Make sure contract is contingent on financing as well. But VA beach is a tough market. Be careful with a 4.5% cap.", "replies": [{"id": "gzvqiy0", "text": "What? Maybe I\u2019m missing something but a 10 day DD period on CRE is basically unheard of.\n\nMaybe on the smallest deal that a bank would finance?", "replies": [{"id": "gzwmr05", "text": "If ur cash 10 days is fairly common in LA multi family. You need definitely need at least 30 days for a loan tho", "replies": [], "depth": 3}, {"id": "gzxdh8v", "text": "Commercial broker, who works with sellers in DMV, but okay. 30 days can happen but brokers want short timelines a lot of the times. We\u2019ve had buyers for hard day 1 and day 30, 45, etc. depends on demand for the deal.", "replies": [], "depth": 3}], "depth": 2}, {"id": "gzvxifw", "text": "This guy has no clue what he is talking about.  Disregard him.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gzvi5yo", "text": "30 days minimum is what I shoot for, 60 days ideal on a larger deal. You simply can't get everything you need done in 10 days.", "replies": [], "depth": 1}, {"id": "gzvo2vr", "text": "30-45 is totally normal, the question for the seller is: \u201cwhy 10?\u201d\n\nThey need a better answer than \u201cbecause.\u201d\n\nYou can review the title commitment in a week, but just to arrange inspections might be booking two weeks out. It\u2019s just an unreasonable position to start from.", "replies": [], "depth": 1}, {"id": "gzvpoym", "text": "I would never do 10. I just wrote and offer for my friend on a 20 unit. We are doing 45 days of DD.", "replies": [], "depth": 1}, {"id": "gzvxg95", "text": "10 days is unreasonable and they know they are being unreasonable.  Is there some reason for them to believe that you are not a serious buyer?", "replies": [], "depth": 1}, {"id": "gzw7uyf", "text": "$100,000 NOI at a 4.5% cap rate means the property is valued at $2.222.222  V=i/r\n\nThat same $100,000 NOI at a 9.5% cap rate is $1,052,632.  You just lost $1,169,590 in value!  That is poor investing.  You would have to increase the NOI to $211,111 to have the same value at 9.5% cap rate.\n\nSounds like you are being taken for a ride.  Cap rates are established by the market. You don't change the cap rate by increasing rents.  You increase the NOI which should increase your VALUE.  The seller wants to close quick before you realize they are screwing you.", "replies": [{"id": "gzw9uua", "text": "Cap rate is NOI/Value. How would you change rent, or NOI, without changing cap rate?\n\nAlso, why would the NOI stay the same? \n\nYou're calculating it as: NOI stays the same and cap rate goes up,  so value must have gone down. He's saying market value is what it is, he'll increase rents, so NOI will be greater compared to the value meaning higher cap rate.", "replies": [{"id": "gzwhbdg", "text": "&gt; he'll increase rents, so NOI will be greater compared to the value meaning higher cap rate.\n\nThat is not how commercial real estate works.  All the cap rate tells you is what investors are paying for NOI.  $10 in a 10% cap rate market and $20 in a 5% cap rate market.  If you look at my mathematical example I showed how much you would have to increase NOI to have the same market value at a 4.5% cap rate and a 9.5% cap rate.", "replies": [{"id": "gzwniom", "text": "Am I wrong that cap rate = NOI/Value? But you're saying that is NOI changes, cap rate doesn't?\n\nIf I buy a $100k place that rents out such that I get $5k NOI, that gives 5% cap rate. But it's underrated and has room to add value, so I can get it to $10k NOI. The cap rate is now 10%. \n\nYou can get into arguments over whether the initial cap rate used incorrect numbers,  because they should use fmv not current rent, or that value would increase after the changes so that its wrong to use the original purchase price, but unless I'm missing something you're focusing on semantics at best instead of the scenario OP gave", "replies": [{"id": "gzwo4dm", "text": "It is not semantics.  Cap rates come from an income approach to value called direct capitalization.  The formula is V=i/r  The V is value and the i in NOI the property is capable of producing and the r is the cap rate that similar properties HAVE sold for.  If similar properties have sold at a 10% cap rate then him buying at a 4.5% cap rate means he will greatly over pay.  The market dictates the cap rate.  Why would he want to calculate a meaningless cap rate?  \n\nThat would be like using your purchase price from 10 years ago against current rents.  It is useless.  So if he increases his NOI then he want to increase his market value instead of some meaningless number.", "replies": [{"id": "gzwq3s7", "text": "Dude you need to hang it up alreaady", "replies": [{"id": "gzwqj3e", "text": "Nope, if you are going to post on a commercial real estate thread you should have basic direct capitalization information.  V=i/r   and let me introduce you to Irv  LOL", "replies": [], "depth": 7}], "depth": 6}, {"id": "gzx2rq6", "text": "I\u2019m new to this, but I know your wrong. \nI figured out my noi and solved for my cap at current rents. Then I created a scenario where I increase my rents and project a cap rate at the new rents and my future noi. My Noi goes up which increases my cap rate. \nMy value would increase as well. I know I\u2019m not 100% on all this stuff but I know if I increase my rents my property value goes up. It\u2019s that simple", "replies": [{"id": "gzx3fqx", "text": "&gt;but I know if I increase my rents my property value goes up. It\u2019s that simple\n\nExactly!  That is what I'm trying to get you novice knuckleheads to realize!  Your value increase is based on your NOI and the market cap rate.  There is no cap rate based on what you paid for a property 10 years ago.  V=i/r   Current market value=NOI/market cap rate.", "replies": [], "depth": 7}, {"id": "gzx69j5", "text": "At a 4.5% cap rate a dollar of NOI is worth $22.22=$1/.045\n\nAt a 9.5% cap rate a dollar of NOI is worth $10.52=$1/9.5%  \n\nIf you take a dollar of NOI from 4.5% to 9.5% cap rate you lose $11.70 in market value for every dollar of NOI.", "replies": [{"id": "gzxf3j1", "text": "My noi is going from 60k to 110k. Price is around 1.2mm. 60,000/1,200,000 is .05 so 5 cap\n\nNew noi is 110,000. So at the same price point, 1.2 it\u2019s about a 9 cap. If the value goes up it\u2019s a 7.5 cap. Most likely it will go up. \n\nI just rounded the numbers for easy math.", "replies": [{"id": "gzy0xvt", "text": "So you can buy $60,000 NOI for $1,200,000.   You work to get the NOI to $110,000 but think the property is still worth $1,200,000.   That is foolish.\n\nWhy not buy a place that has $110,000 NOI for $1,200,000 and not have to work on it?\n\nAny way you look at the cap rate formula will not get you to a 7.5 or a 9 cap.  You are just miscalculating.  You can divide your old or new NOI by any number that you want to but that does not make it a cap rate.  It just makes it a useless number.  So the result is 7.5 or 9.  What do you think that tells you?\n\nIf you buy at a 5% cap rate I can say you paid $20 for each possible dollar of NOI.  That is helpful to other people in the market.  Your 7.5 and 9 calculation tells them nothing.\n\nhttps://www.bing.com/videos/search?q=irv+capitlization&amp;&amp;view=detail&amp;mid=4CBE8BACCCC2BD9A2C094CBE8BACCCC2BD9A2C09&amp;rvsmid=8FB0CCB50EBB70D7BB698FB0CCB50EBB70D7BB69&amp;FORM=VDRVRV\n\nWhy would you want it to?", "replies": [{"id": "gzz0gzn", "text": "I don\u2019t get you. \nIt\u2019s based off what I paid. If I bought it for 1.2 and raised it to 9 cap. To me for only being in the deal for 1.2 it\u2019s a 9 cap. If I sell it or refinance it then I can pull profits out. \nIn a year this building could be worth 2 mil because of the area and what they are doing. So my cap rate would go down IF I sell. So if I sell it later for 2 mil, the cap I sell it at would be 5.5 cap. \n\nThe point of the building is to increase to noi. Cap rate doesn\u2019t really matter as much as cash flow and noi. This property with a loan on it I can cash flow 3800 a month after all my expenses. At current rents it only cash flows like 500 a month after expense. So the point is add value to the property by increasing the noi. Then I could either sell it for a higher price or refinance and pull capital out to deploy somewhere else.", "replies": [{"id": "gzz35vb", "text": "&gt;It\u2019s based off what I paid. If I bought it for 1.2 and raised it to 9 cap.\n\nThat is not a cap rate.  It is a calculation you can make BUT WHAT DOES IT TELL YOU?  If you tell me you have a 9% cap rate then using cap rates correctly I can say you have NOI worth $11.11  **9%=$1/$11.11**  But you said you bought it at a 4.5% cap which means you paid $1/4.5%=$22.22  So if the 9% was a cap rate then you lost $11.11 on every dollar of NOI that you bought.  \n\nIn a 10% cap rate market an increase in NOI of $1 will increase your value by $10.  In a 5% cap rate market that dollar increase will give you a $20 increase in value.  YOU don't change a cap rate.  That is controlled by the market.  If after you buy at 4.5% the market decides it will only buy at 5% then your $22.22 worth of NOI is now only worth $20.\n\n1.  What is the 9% figure telling you?", "replies": [{"id": "gzz3gnl", "text": "It\u2019s just a metric IM using for my personal value of the property. When I sell it, if I do, then I will sell it at 5-6 cap.", "replies": [{"id": "gzz47gi", "text": "Well there you go.  After all this you realize it is a meaningless metric.  Great, but why not call it the djyosco rate?  Calling it a cap rate just shows your lack of knowledge and opens you up to being conned.\n\nNow I'm wondering how you got to the $1,200,000 value?  I hope you realize a 50% occupied property, a vacant building and a 95% occupied will all sell for about the same cap rate.  I can show you how to correctly value your property so you don't get taken advantage of and over pay.", "replies": [{"id": "gzzdcq9", "text": "I\u2019m going off the market surrounding the building. I\u2019m not using their pro-forma, I\u2019m running my own numbers. The building is listed higher than what I am offering at. I know at the current price I\u2019d purchase for, the current rents support a note. But if I raise the rents after renovating the units I\u2019ll be able increase my cash flow. Once I increase my noi I can either refi based on that or sell. I will most likely refi and redeploy.", "replies": [], "depth": 14}], "depth": 13}, {"id": "gzz4ply", "text": "&gt;It\u2019s just a metric IM using for my personal value of the property.\n\nUm, don't you already have that **personal value** in your purchase price of $1,200,000?  Nothing has changed.  You kept the value at $1.2 and it is still $1.2!  Your calculation did nothing.", "replies": [{"id": "gzzcy8m", "text": "Please. Explain to me how to increase my cap rate while increasing my value and my noi", "replies": [], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}, {"id": "h00v7im", "text": "Honestly this guy has no idea what he\u2019s talking about. If you increase the NOI on your property such that NOI / purchase price = 9% it\u2019s your basis yield not cap rate but that\u2019s just semantics. To your point the way you make money in CRE is to buy a property at x% cap rate, improve it so that there\u2019s a meaningful spread between your basis yield and market yield and either rip out cash thru a refi and do it again or sell it.", "replies": [{"id": "h00vf0w", "text": "That\u2019s exactly my plan. Find a place with value add. Current cap is low. I\u2019m going to increase my noi with value adds and raising rent and such. Then refi or sell.", "replies": [{"id": "h012720", "text": "100%, time tested and proven out... if I were a private investor I\u2019d honestly just buy low basis multi with 10-20 unit (way too small for even semi institutional but big enough to make managing a little easier), ride a value upswing refi it and buy the next one. I\u2019ve seen absurd personal financial statements over the course of my career from guys who do this again and again and never take outside money", "replies": [{"id": "h01o8bb", "text": "Yea I could totally do the deal myself. But I may bring in others to try a mini syndication. Just to get my feet wet on a smaller deal with tons of upside.", "replies": [{"id": "h01pzqi", "text": "You have much direct commercial experience? Syndication isn\u2019t a bad route if you have friends who trust you to execute; just need to make sure you\u2019re set up in a GP position so that you hasve full control over the investment. My only advice is making sure you hire an attorney that does commercial real estate structuring if you go this route if you haven\u2019t done it before - one of the most under appreciated risks is associated with just having bad documents. Anyways good luck, there is a lot of money to be made in the non-institutional space if you know what you\u2019re doing, most of the mom&amp;pop is super under managed presenting real operating upside.", "replies": [{"id": "h02n10b", "text": "I have not syndicated before. But I spoke to some friends who have cash and let them know I want to do this. They are all on board and asked me when I need the money by! I hadn\u2019t even identified a property yet. But now this came up and it could fit a mini syndication. So I may do it to help build trust for future bigger endeavors", "replies": [], "depth": 16}], "depth": 15}], "depth": 14}], "depth": 13}], "depth": 12}, {"id": "h01i320", "text": "&gt;Honestly this guy has no idea what he\u2019s talking about.\n\nHey you are the guy that can't show a 0% cap rate of where your 18%-20% cap rate came from.  Put up or shut up!  Quit faking it.", "replies": [{"id": "h01r945", "text": "Ok guru, I buy a building for $100.  It\u2019s currently vacant but on an unlevered basis between taxes, insurance, utilities and other cost of carry out the gate I\u2019m losing $5/year until I get a tenant in. What\u2019s my cap rate on acquisition? I\u2019d say that\u2019s a 0%, just like negative IRR it never gets quoted because it\u2019s meaningless. \n\nOr how about this one, I buy a NNN building with 1 year WALT for $100, first year my NOI is $18 then the tenant is a known vacate. Until I backfil it same as above I\u2019m losing $5 per year. The building needs $50 in ti/LC/capex to stabilize. What\u2019s my cap rate on acquisition? I\u2019d say I\u2019m buying it at an 18%. \n\nNot sure what you are hung up on? Cap rate is critical for calculating your reversion assumption but otherwise is meaningless; investors are looking at unlevered and levered returns, cash on cash yield, and basis yield at exit relative to mri I payed market cap.", "replies": [{"id": "h01r9r5", "text": "Hi losing $5/year until i get a tenant in, I'm dad.", "replies": [], "depth": 14}, {"id": "h01uz56", "text": "&gt;Ok guru, I buy a building for $100.  It\u2019s currently vacant but on an unlevered basis between taxes, insurance, utilities and other cost of carry out the gate I\u2019m losing $5/year until I get a tenant in. What\u2019s my cap rate on acquisition? I\u2019d say that\u2019s a 0%, just like negative IRR it never gets quoted because it\u2019s meaningless.\n\nWhat is the PGI/GSI and the cap rate that similar stabilized properties are selling at?", "replies": [{"id": "h01vfao", "text": "&gt; but on an unlevered basis\n\nWhat difference would this make?  Unlevered or 100% levered makes no difference in the cap rate.", "replies": [], "depth": 15}], "depth": 14}, {"id": "h01v2xt", "text": "&gt;Or how about this one, I buy a NNN building with 1 year WALT for $100, first year my NOI is $18 then the tenant is a known vacate.\n\nWhat is the PGI/GSI and at what cap rate are similar stabilized proprties selling at?", "replies": [], "depth": 14}, {"id": "h01v5vm", "text": "&gt;Not sure what you are hung up on? Cap rate is critical for calculating your reversion assumption but otherwise is meaningless\n\nHow would you value a commercial property encumbered by long term above/below market leases without using direct capitalization?", "replies": [], "depth": 14}, {"id": "h01y5tk", "text": "&gt; I\u2019d say that\u2019s a 0%,\n\nDo you know the concept of Irv?  Using Irv show the math for a 0% cap rate.", "replies": [], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "h05vq7i", "text": "&gt;My noi is going from 60k to 110k.\n\nExactly how is this going to happen?  8 units that you say can rent for $1350 so 8X $1350 X 12 is $129.600 then say $12,000 for the efficiency so $141,600gross rents,  Knock off 5% for vacancy and collection and you have $134,500  and to get to $110,000 NOI you would only have operating expenses of $24,500!!!???  Dude your inexperience is getting you royally screwed!  I can save your ass though if you wanna talk about a great deal I have on a bridge.", "replies": [{"id": "h06o7t2", "text": "Let me here you break down my expenses. Give em to me. I want to hear you.", "replies": [{"id": "h06qdei", "text": "PGI $141,600\n\nV/C  $7080\n\ntaxes  $8900\n\nins  $7200\n\nmgt  $13,500\n\nMaint &amp; repairs  $5000\n\nUtilities  Water/Elect?Garbage  ??  L$L6000\n\nSupplies and Services  Landscape  Pest control  $1200\n\nNOI $92,720  That is only a 35% expense ratio which is on the low end.  My expenses are guesstimates.  my experience is more west coast/Honolulu based.  I am probably low on the utilities and ins.", "replies": [{"id": "h07ase3", "text": "You don\u2019t include mortgage when doing noi. When figuring out cap rate it\u2019s based on the asset not the note. So you don\u2019t include mortgage. \nElectric is 1,000 a year. Water is going to be sub metered back to tenants. So that\u2019s another 6k in noi. \nRental of washer/dryer in unit will be 40 per unit. If they want to supply their own they can. It\u2019ll also push the electric to the tenant instead of me.", "replies": [{"id": "h080aey", "text": "Of course a mortgage is not an operating expense.  And we are not calculating a cap rate so why would you bring it up?  The $6,000 utilities was assuming tenants paid their own elect and you paid water.  Still won't you need water for landscaping and what are you budgeting for trash?\n\nI question your ability to raise rents $500 PLUS electricity Plus water.  Even if you can do that it will be very costly and will probably jack your property taxes enough to wipe out your water savings.  So you are still no where near $110,000 NOI even on a perfect day.\n\nWhat is considered the Craigslist sub market for this area?  Can you show me a $1350 rent nearby?\n\nNot even $1300   https://norfolk.craigslist.org/apa/d/virginia-beach-sign-up-for-our-waitlist/7309446296.html", "replies": [], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "h00hx7n", "text": "&gt;If I buy a $100k place that rents out such that I get $5k NOI, that gives 5% cap rate. But it's underrated and has room to add value, so I can get it to $10k NOI. The cap rate is now 10%.\n\nIf NOI is selling at a 5% cap rate based on cap rate comps from similar properties then your purchase of $5,000 NOI for $100,000 does create a 5% cap rate.  $100,000=$5,000/5%.  If you increase the NOI to $10,000 then the new V=i/r is $200,000=$10,000/5%   Why would you want a meaningless 10% number instead of a $100,000 increase in value?", "replies": [{"id": "h0169i9", "text": "It's not like you get to pick one or the other. The numbers are what they are, these terms are all just different ways to describe it. OP is saying that after a little work the numbers will work out to a certain cap rate, which is is telling us to help quickly give the quality of the property as an investment, which is the point of using this formula at all", "replies": [{"id": "h017wv0", "text": "&gt;which is is telling us to help quickly give the quality of the property as an investment, which is the point of using this formula at all\n\nNOPE, the cap rate ONLY tells you what the investor paid per dollar of NOI.  Class A office in Philly sells for 7% cap rate and Class A office in SF goes for a 4% cap.  I would say the quality is about the same.  Why do you think it would be different based on the cap rate?\n\nAnd you can pick your cap rate by changing markets.  Why do you think your couldn't?  \n\nHe can change his NOI all he wants to but it will not change the cap rate.  If he has $100,000 NOI or increases it to $150,000 the market is not going to pay a different cap rate for one or the other.  They will just pay a higher price.  \n\nI bought property in 1978 for $35,000.  It now produces about $18,000 NOI.  If I divide $18,000 by $35,000 then it comes out to 51.4%.  That is not a cap rate and it is a pretty meaningless number.  If I called it a cap rate then it would mean that a dollar of NOI is worth only $1.95!  That is not factual because the 51.4% is NOT a cap rate.  If similar properties are selling for a 5% cap rate then my $18,000 NOI is worth $360,000.  That is a factual number.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "gzwd5th", "text": "Are you stupid...? Honestly, idk if you\u2019re trolling or just dumb.", "replies": [{"id": "gzwhfa8", "text": "What part of the math don't you understand?  It is really pretty basic but I will be happy to educate you.  LMK", "replies": [{"id": "gzwiznv", "text": "He said he will get it to a 9.5 cap rate...which is done by increasing NOI. Given the equation of how you calculate the cap rate, if OP indeed increases NOI the cap rate increases....\n\nHe is calculating the cap rate by using the same purchase price, this does not take into consideration that the property value will most likely increase as well.", "replies": [{"id": "gzwjgj6", "text": "Don\u2019t waste your time engaging with this clown he has no idea what he is talking about and makes asinine comments on cap rate whenever it comes up.", "replies": [{"id": "gzwr0x2", "text": "And yet you cannot refute any of my factual statements!  Aren't you the guy that bragged what a big shot wall street guy you were but then went back and deleted all your posts?  \n\nAnd aren't you the guy that offered to teach about 0% cap rates and 18% cap rates that change?  Still waiting on that!  Who is the CLOWN?  LOL", "replies": [], "depth": 6}, {"id": "gzwsynh", "text": "Made me look it up!  Ha Ha \n\n**But even better you stated, \" I\u2019m more than happy to help educate you about cre valuation\". Put up or shut up! Ha ha Waiting anxiously for your thorough edification.**\r  \n\r  \n**You also stated, \"In the world of super distressed investing you pay a 0 or something high... you don\u2019t expect that 18 to last very long\"**\r  \n\r  \nu/stoweker **you got some 'splaining to do!**\n\n&amp;#x200B;\n\nCom'on Wall street Wow us!", "replies": [{"id": "gzzb9bq", "text": "To determine the value of an investment TODAY one would underwrite all prospective cash flows over the hold period - all contractual rents, all assumed tenant turnover, all TI/LC, all capital etc, with an assumed exit cap rate on STABILIZED NOI to arrive at a reversion value. One would then apply an appropriate discount rate to the unlevered cash flow that accounts for the risk inherent in the execution of the business plan (and interim execution if remarking for purposes of asset management valuation). While stabilized market cap rate for a property could be say 5%, one might purchase that property at a 20% cap rate if there is an anticipated high capital need to remediate an issue, a near term tenant rollover which could adversely impact interim cash flows and require capital, etc. Conversely one could buy property with negative cash flow (ie it is vacant and you are paying expenses out of pocket) and such an instance the property is purchased at a 0% cap rate. \n\nTo OPs point, they are conflating terms, what op is trying to say is he\u2019s increasing his basis yield to a 9% through increasing NOI. That\u2019s how people make money... spread between basis yield and stabilized cap rate at exit. \n\nAnd the only way you would apply a market cap rate to in-place NOI for valuation is if the property is stabilized. Otherwise I am sure as an appraiser (which I think is what you said you were, or at least implied) I think you would have come across the as-is and as-stabilized valuations provided.\n\nOh and your formula is wrong it\u2019s not v=I/r it\u2019s i*(1+g)/r. You can\u2019t omit the growth factor.", "replies": [{"id": "gzzx09w", "text": "Geez, where did you come up with a 20% cap rate?  Made up!      \nGeez, where did you come up with a 0% cap rate?  Made up!  It is impossible to have a 0% cap rate!  Wanna show Irv the math on that?  Ha Ha\n\nI am not calculating a cap rate on in place NOI.  That would be stupid.  Where would you get a cap rate comp?  \n\nAnd the formula for direct capitalization is V=i/r.  The anticipated growth is in the cap rate.  That is the reason similar properties but in different markets can sell at say 5% in one market and 10% in another!  Geez, that is basic for any investor.\n\nAnxious to see where you got your 20% cap rate and the calculations on the 0% calculations.  Psst, NOI starts with GSA/PGI.  See, you learn something every day.", "replies": [{"id": "h0006v2", "text": "You\u2019re funny. Best of luck in your future endeavors.", "replies": [{"id": "h0081vu", "text": "u/djyosco88See, this is the problem with these Brohards that have watched a couple of BP podcasts and think they are pros!  This guy keeps sniping in but this is the third thread where he cannot back up his figuring.\n\n20% cap rate out of the blue and an impossible 0% cap rate.  Geez.", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "gzwmnok", "text": "You have no idea what you are talking about", "replies": [{"id": "gzwq9ai", "text": "u/GringoDeGringo\n\nWhat part don't you understand?  I will be happy to educate you.  LMK", "replies": [{"id": "gzwy4wq", "text": "When you are increasing the income your effective cap rate goes up because you haven\u2019t changed what you purchased the property for. When it comes to selling the property your cap is based on the new selling price. If he increases his noi, his Internal cap goes up. When selling it, he will sell the property for the the cap rate that the market supports (exit cap). If he\u2019s increasing NOI it will substantially increase the value. He\u2019s not selling it for a 9.5 cap lol. \n\nHope this helps.", "replies": [{"id": "gzwyzo2", "text": "Effective cap rate?   You are just making up things.  If I am working to increase my NOI then I expect an increase in value.  The formula is V=i/r  If properties are selling at 10% cap rate then if I increase NOI by $10,000 then I want to see an increase in value of $100,000.  $100,000=$10,000/10%  That is how cap rates work.\n\nThe 10% cap rate is determined by the market.  Using new rents that increase NOI against your purchase price last year is a useless number and is not a cap rate because the formula is Current market value=current NOI/current cap rate comps.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "gzx2c4e", "text": "The noi is being increased which is going to raise my cap rate.", "replies": [{"id": "gzx2p6y", "text": "V=i/r   Increased NOI will raise VALUE.  You have no control of what the market cap rate is.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gzwvyiu", "text": "What % are u putting as down payment ?", "replies": [{"id": "gzx27pp", "text": "Most likely 25% but I have a few scenarios I\u2019m working through. One would being syndicating the down payment then refinancing them out once I increase the noi. \nThis is my first commercial deal so I\u2019m learning. \nI can also put cash but I don\u2019t want to lock up funds on deal right now. I\u2019m not sure what the market will look like in 2 years.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gzxkqg7", "text": "I saw that building online and the reason the seller is requesting a short diligence period is because they appear to be using a residential realtor who only knows resi deals.  \n\nI used to live in VB and that area is just off the heart of the oceanfront strip.  Know that it is busy in the summertime and you will hear and get mixed up in the crowds, which get rowdy on the weekends.  My policy was to park the car on Friday and only travel by bike.", "replies": [{"id": "gzz23hp", "text": "So that\u2019s how I found the deal. It was listed on a residential site and only had a sign out front \nIt\u2019s a small property so I\u2019ll just have to fly down and walk it with contractors that day and a roofer. I can get it done in 10 days I just wanted more.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h01lfhy", "text": "This guy had a decent grasp of cap rates and the experience.\n\n[https://www.biggerpockets.com/blog/capitalization-rate-definition-myths-debunked](https://www.biggerpockets.com/blog/capitalization-rate-definition-myths-debunked)\n\n&amp;#x200B;\n\nOf specific interest to you,\n\nMyth Busted: Forcing the Cap Rate", "replies": [], "depth": 1}, {"id": "h0h5v78", "text": "u/stoweker   Are you hiding?  LOL\n\nOk guru, I buy a building for $100. It\u2019s currently vacant but on an unlevered basis between taxes, insurance, utilities and other cost of carry out the gate I\u2019m losing $5/year until I get a tenant in. What\u2019s my cap rate on acquisition? I\u2019d say that\u2019s a 0%, just like negative IRR it never gets quoted because it\u2019s meaningless.\n\nWhat is the PGI/GSI and the cap rate that similar stabilized properties are selling at?\n\nbut on an unlevered basis\n\nWhat difference would this make? Unlevered or 100% levered makes no difference in the cap rate.\n\nOr how about this one, I buy a NNN building with 1 year WALT for $100, first year my NOI is $18 then the tenant is a known vacate.\n\nWhat is the PGI/GSI and at what cap rate are similar stabilized proprties selling at?\n\nNot sure what you are hung up on? Cap rate is critical for calculating your reversion assumption but otherwise is meaningless\n\nHow would you value a commercial property encumbered by long term above/below market leases without using direct capitalization?\n\nI\u2019d say that\u2019s a 0%,\n\nDo you know the concept of Irv? Using Irv show the math for a 0% cap rate.\n\nu/djyosco88", "replies": [{"id": "h0h84hw", "text": "I\u2019d prefer to not listen to your senseless ramblings.", "replies": [{"id": "h0h8w7d", "text": "Then you should probably not be posting ignorant crap on a commercial real estate forum.\n\nDid you even bother to read this?  If you did even you would probably be able to answer the questions that stowerker can't.  LOL\n\n[https://www.biggerpockets.com/blog/capitalization-rate-definition-myths-debunked](https://www.biggerpockets.com/blog/capitalization-rate-definition-myths-debunked)", "replies": [{"id": "h0hasz9", "text": "Why are you such a dick. Your post history is just you berating people. Is there a reason your so rude?", "replies": [{"id": "h0hbpa1", "text": "If you see a dick that is your problem.  I tried to educate you but you want to call it senseless ramblings,  You will get screwed big time by the people that will take advantage of your ignorance.  I tried to warn you about u/stoweker and you can see he cannot respond to his questions to me!  Typical scammer behavior.\n\nWhat is your point of posting?  You are just wasting space when someone posts factual information but you cannot have a civil discussion because of your ego.", "replies": [{"id": "h0hfzaf", "text": "Well I was asking about a the typical due diligence for a commercial property. \nI know what I\u2019m doing with the property\nIf I get it for the price I want. I understand what you are saying about cap rates. What I\u2019m trying to explain is what my \u201ccap rate\u201d would be based on my purchase price. Maybe that\u2019s not the right term I\u2019m using but whatever. All I know is the property has tons of value add. \n\nAlso I know the rents could be 1350. The reason I know is unit 7 is being rented out at 1350 right now for the past 1.5 years. They renovated the apartment and raised the rents. The people who own it now have owned it since 73. They built the building and didn\u2019t continue to raise rents the past 15 years. They are cash flow positive so they never raised. There looking to cash out and sell. The asking is 1.35. I offered 1.15. I don\u2019t think they\u2019ll accept.\n\nBut yea you are a dick. You just berate people for no reason. There\u2019s a difference between educating someone and badgering them. There\u2019s no need for you in places where people are learning. If your so experience then you should be able to easily purvey your message.", "replies": [{"id": "h0hi323", "text": "Yeah no!  This is what I was met with...\n\nlevel 6\r  \nstoweker\r  \n\u00b74d\r  \nDude you need to hang it up alreaady\r  \n\r  \n\r  \nlevel 6\r  \ndjyosco88\r  \nOP\u00b74d\r  \nI\u2019m new to this, but I know your wrong. I figured out my noi and solved for my cap at current rents. \r  \n\r  \nstoweker\r  \n\u00b73d\r  \nHonestly this guy has no idea what he\u2019s talking about. \r  \n\r  \nstoweker\r  \n\u00b73d\u00b7edited 3d\r  \nOk guru, I buy a building for $100. It\u2019s currently vacant but on an unlevered basis between taxes, insurance, utilities and other cost of carry out the gate I\u2019m losing $5/year until I get a tenant in. What\u2019s my cap rate on acquisition? I\u2019d say that\u2019s a 0%, just like negative IRR it never gets quoted because it\u2019s meaningless.\r  \nOr how about this one, I buy a NNN building with 1 year WALT for $100, first year my NOI is $18 then the tenant is a known vacate. Until I backfil it same as above I\u2019m losing $5 per year. The building needs $50 in ti/LC/capex to stabilize. What\u2019s my cap rate on acquisition? I\u2019d say I\u2019m buying it at an 18%.\r  \nNot sure what you are hung up on? Cap rate is critical for calculating your reversion assumption but otherwise is meaningless; investors are looking at unlevered and levered returns, cash on cash yield, and basis yield at exit relative to mri I payed market cap.\r  \n\n\n&amp;#x200B;\n\nSo as you see it is me being attacked and not what I teach.  In fact that is ignored because it contradicts the ignorance that is being spewed here.  Again, did you bother to read Brian Burkes blog that supports what I am trying to educate you about?", "replies": [], "depth": 7}, {"id": "h0hje68", "text": "&gt;All I know is the property has tons of value add.\n\nAnd you think the sellers don't know this?  Classic scammer tactic.  I'm just an old real estate investor.  Please take this property off my hands cause I'm in over my head since 1973!!  You'll get rich screwing us poor uneducated investors that have been doing this since before you were born.  Ha Ha\n\n&amp;#x200B;\n\nLook at all the value add.  We too stupid to figger this out.", "replies": [], "depth": 7}, {"id": "h0hk7dk", "text": "&gt; The reason I know is unit 7 is being rented out at 1350 right now for the past 1.5 years.\n\nRented to a cousin and they refund him $500 every month.  Geez, maybe you are such a newbie that you have never heard the phrase. \"One sale does not make a market!\"", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "h0mptmq", "text": "&gt;u/stoweker   Are you hiding?  LOL  \n&gt;  \n&gt;Ok guru, I buy a building for $100. It\u2019s currently vacant but on an unlevered basis between taxes, insurance, utilities and other cost of carry out the gate I\u2019m losing $5/year until I get a tenant in. What\u2019s my cap rate on acquisition? I\u2019d say that\u2019s a 0%, just like negative IRR it never gets quoted because it\u2019s meaningless.\n\nThis property will sell at the same cap rate that similar properties in the same market are selling at.  God that was easy!  Your impossible 0% cap rate is imaginary.  If you have any real estate experience you should know Irv.  Irv says you are ridiculous.  But tuck your tail in and crawl to a corner.  LOL", "replies": [{"id": "h0mvxe2", "text": "Please stop messaging me. I really don\u2019t care to engage in any discussion with you. Best of luck in your future endeavors, I hope you figure out what you are actually seeking.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h0o9dvt", "text": "u/stoweker stated, **\"Or how about this one, I buy a NNN building with 1 year WALT for $100, first year my NOI is $18 then the tenant is a known vacate. Until I backfil it same as above I\u2019m losing $5 per year. The building needs $50 in ti/LC/capex to stabilize. What\u2019s my cap rate on acquisition? I\u2019d say I\u2019m buying it at an 18%.\"**\n\nAnother easy one.  That property woud also trade at the market cap rate derived from closed analyzed sales of similar properties.  You should educate yourself to PGI!  Your 18% cap rate is fake!  How can you not know how to value commercial properties as a high faluting wall street know it all?  LOL", "replies": [{"id": "h0oebov", "text": "Please stop cc\u2019ing me. I have no interest in continuing to engage with you.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h0ohcnh", "text": "u/stoweker stated, \" I\u2019m more than happy to help educate you about cre valuation\".\n\nSeems like you over promised and under delivered!  Is that a correct analysis?  LOL", "replies": [], "depth": 1}, {"id": "h0poqw2", "text": "u/stoweker  stated,\n\n&amp;#x200B;\n\n**Not sure what you are hung up on? Cap rate is critical for calculating your reversion assumption but otherwise is meaningless**\r  \n\r  \nHow would you value a commercial property encumbered by long term above/below market leases without using direct capitalization?\n\nThis was never hashed out.  What's the matter?  Can't you answer the question?", "replies": [], "depth": 1}]