Is Capitalization rate or CAP rate a good measure of Good investment property or not?

In the commercial real estate, probably the most throw around term is “Capitalization or CAP rate”  as we learn from before the CAP rate is the relationship between the income of the investment vs. the price one pays for the investment.  To play around with the formula of:  Cap rate = NOI (net operating income /Price in another way, how one determine the price or value of the investment is taking the NOI/Cap rate = Price.  So if the cap rate goings up or down will surely change the Price of the investment if the net income stays the same.  So how do we find the cap rate for the investment?  One way is to look at some market sales data for similar properties and look at the relationships of the NOI and the Sales Price.  While Cap rate is use to valuate the investment base on its NOI, what is most important to an investor really is call “Yield” which is what kind of return I can get for the money I put out. Read More

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Analytics, it is the true pure life blood of commercial real estate

DCR, NOI, CAP, APOD,ROR,Yield, ROI, LTV, Debt Service, all these terms is enough to cause many good night sleeps for many people.  Not to mention the formulas such as:  IRV or Value = I/R, or Rate = NOI/Price, debt service constant = 0.89765 etc. etc.

My California license was expired after I went to China, so recently I had to take the real estate broker’s examine all over again. To my surprise, the examine has taken out the math portion and there is no math questions.  I guess too many people complain about hard it is to study for the math and it is confusing to many of the potential real estate broker that the State of California just take that out all together.  So if this so call “real estate professionals” do not understand the simpler math, no wonder the beginner investors to the commercial real estate are afraid of all those math and terms listed above.  Actually all those commercial real estate terms are not all that difficult once you understand them.  It is like with the invention of internet, and modern electronic communication, we learn what LOL, CU, means.  Difficult or not, if you are to invest in commercial real estate, and you should because that is one of the best and most stable investment for your accumulation of wealth.
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Put down your emotion when you buy investment property

A client of mine bought a piece of property in a resort area, and now it has lost a lot of value, I asked him how often he uses that?  He said they used it quite a bit before, but not now anymore, and the association fee has jumped up huge amount lately.  From the amenity property stand point it satisfied their emotional needs, but from an investment stand point it is a poor investment and is costing them a lot more money now, and from a accumulating wealth stand point, this property is eroding their total asset.  So the first lesson in investment real estate is to put the emotion aside when buying investment real estate.  As I mentioned in my last article, there are number of indicators that is standard for evaluating different types of properties.  As a seasoned investment property owner knows, you make your money when you “buy” your real estate and not when you “sell” it.
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What is a CAP Rate, GRM? DCF, and the list of the alphabet soup??

The other day, one of my investor client was asking me about a property flyer I gave him.  He looked at the property and like it.  But he asked me, “What is a CAP rate?”  As I mentioned in my last article, investment properties differ in the way we look at them.  Most investor looks at investment property as a vehicle to build up their personal wealth.  Just owning a business you need a business plan so you can reduce the risk by looking at the various numbers (cost, profit margin) compares to the industry standard.  CAP rate, GRM, is nothing more than the investment real estate’s measure of different alternative investments.
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From Residential (amenity property) to Commercial real estate (investment property)

For most investors starting out, residential properties are the first choice.  The reason, they are most familiar to them because they own houses before they will buy rental properties.  Starting with a single family or duplex they eventually graduated to larger and different types of properties such as retail, office and eventually industrial.  So what is the difference between the residential properties and commercial?  For one thing residential properties are consider “amenity properties” where commercial properties are generally “investment properties”.   What is amenity properties?   According to Wikipedia’s definition: “amenities are any tangible or intangible benefits of a property, especially those that increase its attractiveness or value or that contribute to its comfort or convenience” it is a decision based more on emotion (I love that swimming pool, or that is close to the elementary school I want my kids to go to).  While investment properties is generally based on set of criteria that are less emotion.
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Who is Jack C. Chu? A brief self-introduction

As the old Chinese saying goes, the order of our physical needs are:  1.  Clothing   2.  Food   3.  Shelter   4.  Transport.  After you have clothes on your body, and food to fill your stomach, then comes shelter or real estate.  This part of the physical needs is as important as the other physical needs of human beings.  Therefore, real estate affects all of us one way or the other.  How does commercial real estate differ from residential real estate?  I hope with this blog I am able to answer some of those questions for you.  If you already have your home, which is the goal of most people, the next step is investment grade real estate.  I welcome all of your questions here, whether you are just curious about the world of commercial real estate or using real estate as a vehicle for your investment.  Let us explore the question(s) you have right here!  Welcome everyone.
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