Telko

Looking at commercial realestate and seeing this around as an example: cape rate 14.7%. What does this mean in assesing wether this is a good buy.

A capitalization rate (or "cap rate") is a measure of the ratio between the cash flow produced by an asset (usually real estate) and its capital cost (the original price paid to own the asset) or alternatively its current market value. The rate is calculated in a simple fashion as follows:

annual cash flow / cost (or value) = Capitalization Rate
For example, if a building is purchased for $1,000,000 sale price and it produces $100,000 in positive net cash flow (the amount left over after fixed costs and variable costs are subtracted from gross lease income) during one year, then:

$100,000 / $1,000,000 = 0.10 = 10%
The asset’s capitalization rate is ten percent.

Capitalization rates are an indirect measure of how fast an investment will pay for itself in net cash flows; each year, the percentage amount of the cap rate will be repaid. In the example above, the purchased building will be fully capitalized (pay for itself) after ten years (100% divided by 10%). If the capitalization rate were 5%, the payback period would be twenty years. Note that in real estate appraisal in the U.S., a stylized measure of cash flow is often used, called net operating income. It is essentially the same as net cash flow, except that debt service and income taxes are not included while a reserve for replacements is included. Where sufficiently detailed information is not available, the capitalization rate will be derived or estimated from income to determine cost, value or required annual income.

Use for valuation
In real estate investment, real property is often valued according to projected capitalization rates used as investment criteria. This is done by algebraic manipulation of the formula above:

Capital Cost (asset price) = Cash flow / Capitalization Rate
For example, in valuing the projected sale price of an apartment building that produces an annual net cash flow of $10,000, if we set a projected capitalization rate at 7%, then the asset value (or price we would pay to own it) is $142,857.

This is often referred to as direct capitalization, and is commonly used for valuing income generating property in a real estate appraisal.

One advantage of capitalization rate valuation is that it is separate from a "market-comparables" approach to an appraisal (which only compares what other similar properties have sold for based on a comparison of physical characteristics). Given the inefficiency of real estate markets, multiple approaches are generally preferred when valuing a real estate asset. Capitalization rates for similar properties, and particularly for "pure" income properties, are usually compared to ensure that estimated revenue is being properly valued.

Cash flow defined
The capitalization rate is calculated using a measure of cash flow called net operating income (NOI), not net income. Generally, NOI is defined as income (earnings) before depreciation and interest expenses:

Cash flow = Net income + depreciation + interest expense + profit tax – reserves for repairs = Gross income – non-interest expenses

Interest expenses are excluded so that the valuation of the property does not depend on the amount of debt used to purchase the property; in financial terms, the cap rate is an unlevered valuation measure. Similarly, profit taxes (or other similar taxes) are usually excluded, as they will depend on the interest and depreciation expenses charged; most other taxes, and specifically property taxes, are treated as part of non-interest expenses.

Depreciation in the tax and accounting sense is excluded from the valuation of the asset, as it does not directly affect the cash generated by the asset. To arrive at a more careful and realistic definition, however, estimated annual maintenance expenses or capital expenditures will be included in the non-interest expenses.

Although cash flow is the generally-accepted figure used for calculating cap rates, this is often referred to under various terms, including simply income.

Use for comparison
Capitalization rates, or cap rates, provide a tool for investors to use for roughly valuing a property based on its income. For example, if a real estate investment provides $160,000 a year in cash flow and similar properties have sold based on 8% cap rates, the subject property can be roughly valued at $2,000,000 because $160,000 divided by 8% equals $2,000,000.

Reversionary
Property values based on capitalization rates are calculated on an "in-place" or "passing rent" basis, i.e. given the rental income generated from current tenancy agreements. In addition, a valuer also provides an Estimated Rental Value (ERV). The ERV states the valuer’s opinion as to the open market rent which could reasonably be expected to be achieved on the subject property at the time of valuation.

The difference between the in-place rent and the ERV is the reversionary value of the property. For example, with passing rent of $160,000, and an ERV of $200,000, the property is $40,000 reversionary. Holding the valuers cap rate constant at 8%, we could consider the property as having a current value of $2,000,000 based on passing rent, or $2,500,000 based on ERV.

Finally, if the passing rent payable on a property is equivalent to its ERV, it is said to be "Rack Rented".

Change in asset value
The cap rate only recognizes the cash flow a real estate investment produces and not the change in value of the property.

To get the unlevered rate of return on an investment the real estate investor adds (or subtracts) the price change percentage from the cap rate. For example, a property delivering an 8% capitalization, or cap rate, that increases in value by 2% delivers a 10% overall rate of return. The actual realised rate of return will depend on the amount of borrowed funds, or leverage, used to purchase the asset.

In Europe, the term Yield is more frequently used in connection with real estate than capitalization rate. Yield is a more general term that refers to income in relation to the price of an asset.

Do people really become successful in assuming other peoples home loan. How powerful are the contract in these real estate kits? What about wholesaling? I want to obtain properties, but I really don’t want to do things the traditonal way. What do you all think?

Yes some of the tricks that they advertise are not updated to fit nowadays market. Such as an assumable mortgage or taking over an HUD. But as far as the total knowledge of the subject …think of it as taking a home course in a subject. There is a lot of material to read and go through. You must be willing to study it and then apply it to the market that you are in. They make it sound as if you buy the book ..then it jumps up and starts making you money. As we all know, nothing worth having has ever come easy.

How do you get a chance to do this before the realestate agents get the home purchased first?

Talk to the bank.

You see all this, sell on ebay, buy realestate, bla bla bla stuff on TV. Well whats the truth. How can I make a good living and still work from home.

most of that crap is a scam

I want to buy a building. (You usually find buildings like these in cities). The top floor or two floors is the residence/apartment and the bottom floor is a store). What is this called? Does anyone know of the tax implicatons of such structure? Would I go to a real estate agent who specializes in commercial realestate?

I believe they are referred to as mixed use buildings and are classified as commercial structures. Your local agent would have access to these type of properties if they are norm in your area.

how do i go about doing it.PLEASE HELP

You haven’t given us alot of information on what style of investing or ownership your interested in.

You could go with buying multi-family properties and landlording to obtain some valuable experience in that arena. That could be done with zero money down if you decided to also live in one of the apartments. This would allow you to build equity and cash flow to move onto larger projects.

There are many other ways to be an investor, this was just one example.

Property is in first stage of Foreclosure.

Probably not. It is probably the amount of money that the loan is in arrears. Then you would have to finance the actual amount left on the loan. Now it could be a property tax forclosure inwhich case, the property could be owned outright by the owner but they owe 29,000 in taxes and you can buy the property simply by paying the owed taxes. It is something worth checking out.

I know right now is a bad time for the price of a house, but does anybody know what city (cities) give the best return when buying a house in a normal market?

san francisco

how can I get a business entity/name and build business for buying realestate? Iam interested in buying tax deeds in any state please help with more information where do I start? can I buy tax deeds without using my own money/credit? can I buy online?

You can register a corporation, But you are trying to persuade people to lend you money too. The question is how can you persuade people to lend you money, sell to you on credit while at the same time hiding your own assets from risk in the venture.
Find gullible people is the only answer that works.
If you do not want your assets exposed to this risk, you have to be offering very high reward to get others to risk theirs.

My mobile home has black mold and there is water damage that he didn’t inform me about. He predated my signature and what can I do?

WHERE is the mold and water damage and how extensive? HOW did he lie, I mean exactly, omission is not necessarily a lie if YOU did not ask the right questions? HOW did he predate your signature and for WHAT purpose was this done?

You purchased a trailer not a stick built and the rules follow alon the lines of a used car instead of real estate laws and your options are probably very limited. IF you did not see the damage then he can always say HE did NOT see or know about the damage either, especially if it was previously a rental.