Real Estate Cap Rates Explained

[@BreakIntoCRE]

Any other real estate finance metrics you'd like to see covered in more detail on the channel?

[@timothybracken1728]

hi is the REFAI good for someone who's interested in REPE in the future? thanks

[@JCurve873]

I would love to see a video on how to evaluate risk when underwriting an investment

[@BreakIntoCRE]

@@JCurve873 Great feedback, James - thanks!

[@lorenzowaller9143]

Been waiting for this video for a while, great job explaining. I would love to see another one diving into the intuition behind cap rates and their relationship to multiples when talking about the return on the investment. It seems like there are situations where people will use a lower number as a higher return, and it has something to do with the inverse of cap rates?

[@gregraymond1237]

A video on calculating release prices and developing a budget for tenant improvements would be nice

[@clintymouse]

Taking a real estate course and this REALLY helped clarify a topic that is poorly explained in the course. Than you!

[@nagahamaekenta]

Could you kindly give your opinion why the office yield is higher than that of residential in US. The office properties seem to be more stable due to NNN mid long term lease and more simple to manage/operate, which leads to lower yield.

[@Franklinsnas-r7v]

Wow, I wish I found this video sooner, it’s so useful!

[@colonysurf8482]

Cap rates don't represent YIELD. All a higher cap rate tells you is that investors will not pay more for a dollar of NOI than in a lower cap rate market.

[@Walina-gv9ph]

@@ryan6541 NOPE! Cap rates can be indicative of risk but do not measure risk. Class A office was selling at 7% in Philly and 4% in SF. The "risk" is probably about the same. It is about profitability. Educate yourself, kzbin.info/www/bejne/rHu7pIpnerdontk

[@Walina-gv9ph]

@@ryan6541 Cap rates come from an income approach to value called direct capitalization. It is a valuation metric ONLY. A 10 xcap means investors have paid $10 for a possible dollar of NOI and $20 in a 5 cap market. I challenge you to show me which property has a higher yield based on the cap rate.

[@warehouseinvestor5036]

youtube is full of these fake guurus who dont even know what a cap rate is

[@bobbowling5645]

This is incorrect. Cap rates come from an income approach to value called direct capitalization. It is NOT a "return" metric. In a 10% cap rate market NOI has sold for $10 per possible dollar, In a 5% cap rate market they have paid $20! If a 10% was a "return" then why is twice the "return" of the 5% cap rate market selling for HALF the price? It doesn't because cap rates measure value, not return.

[@jonahsekakoni]

You may be conflating expected future return of the deal and current yield in your 5% and 10% return comparison. The video refers to current yield when describing cap rates and not expected future returns as you intimate in your comment. Very slight difference!

[@donaldwiggam6346]

No, the cap rate measures what investors have paid for NOI. The formula is V=i/r. $10=$1/10% or $20=$1/5% You cannot accurately state which purchase will be more profitable BUT I can state the VALUE paid in each case. You are being scammed!

[@colonysurf8482]

@@NikolaiRay So where are you getting this "purchase price" since you are incorrectly using capitalization rates?

[@rivernorthhomes]

This video is confusing.. buyers of multi unit buildings and shopping centers want High Cap rates, not Low cap rates

[@Walina-gv9ph]

@@rivernorthhomes Yeah, it would be great to pay $10 (10% cap rate) for a dollar of NOI but if sellers are getting $20 (5% cap rate) then you need to figure the reason. Usually it is because the property will be more profitable. Buying cheap does not mean more profitable.

[@navithukral4600]

Hi , What's your fee for someone who is Interested to break in Multifamily?

[@christopherroque5986]

I would love to see a video on how to identity primary comps!

[@Walina-gv9ph]

Cap rates do not measure returns. The formula is r=i/v So $1 of NOI in a 10 cap market is worth $10. 10%=$1/$10 10%=$2/$20 Now double the NOI. See the VALUE changes, not the cap rate. It is not a return metric.

[@mirteshappy1]

Cap rates are a snapshot at the moment that the property is being acquired. After that...

[@warehouseinvestor5036]

right??? good reminder that RE youtubers are focused on selling courses and not on actually providing correct informattion

[@moxiepops8457]

Great content! And Eyebrows😉

[@timothybracken1728]

hi is the REFAI good for someone who's interested in REPE in the future? thanks

[@BreakIntoCRE]

Hi Thomas, I haven't gone through the REFAI curriculum personally, so I can't advise on the program. REFM is a well-known name in the industry, though, so it will likely be a good learning experience to go through the course. Good luck!

[@liammoore1025]

Great vid, Justin! What about a topic on JV vs Syndicated investor structures and the pros and cons of each?

[@BreakIntoCRE]

Thanks, Liam! Just to clarify, are you referring to having one major institutional partner vs. many smaller investors in a deal? Let me know - thanks for the feedback!

[@liammoore1025]

@@BreakIntoCRE Correct. Only in my case I’m a startup GP and my potential JV partner is an individual. How should I be thinking about this vs trying to syndicate? How do legal fees compare, fee structure, efficiency of raising capital, investor management software expense, etc. etc.

[@thatgirlyami]

Thank you so much! I was able to pretend I knew what I was doing in front of my boss 😂

[@themortgagechics_chronicles_ca]

Thanks so much Justin. Have learnt an awful lot from you!!!

[@marcelblack10]

Get video! Where can I find the calculator that you use?

[@michelasayag5002]

Hi Can you share the pro forms page to calculate the deal Thanks

[@mcmmcm8143]

Hey Justin, where can i download your excel in This Video ? Awsome!! 👌🏻

[@JCurve873]

This channel has become my new go-to for learning about basic & intermediate CRE concepts. I recently invested in your classes and I am already applying the skills learned in my job. I am very grateful for your content - keep up the great work!

[@BreakIntoCRE]

Thanks, James! Great to hear you're finding the content helpful!

[@whatislifebuttheenjoymento3405]

Now that's whats called business

[@skillz8363]

Can't hear. Volume too low

[@guzmanadventures]

same lol

[@marielarias550]

Hey Justin, I can't seem to find the video you made about the different roles within CRE and their compensation and pros/cons. Can you help? It included debt analyst and all the others. Thanks!

[@Bismarkdee-b9n]

Its worse here, our economy is like a flailing fish, fighting for its life. The normal state of the U.S. economy is actually very bad. Because of this it goes into convulsive spasms fighting to grow any way it can out of desperation. Tricks, gimmicks, rule changes try to stimulate the economy and prevent it from falling but they only bring temporary relief to people since, when you factor in inflation we are declining.

[@Seattleskate123]

Multifamily cap rates in SD are incredibly low right now. I'm seeing 2-3% caps everywhere from PB all the way to El Cajon. Crazy times in the market.

[@kevinmosher920]

Great insight as always! Would love to get a video breakdown of multifamily brokerage commissions, in particular how much a broker actually brings in from 65 bps fee on a large deal after splitting with company and team members. Really just further detail into the pay structure of associate brokers vs VPs vs managing directors.

[@govind4851]

How to determine the value of an office based on the set of assumption . This is single tenant office building Target IRR - 20% Annual rent - 100000 Annual rent increase -5.0% Operating Expenses (%rent)- 30% Financial info Loan to Value Ratio - 50% Interest rate - 3% Holding Period (years) - 5 Exit cap rate - 5.0% IRR hurdle - 20% Please do help

[@leivibartfield7087]

Thanks Justin! LOVE YOUR VIDEOS. How do I determine what the cap rate should actually be vs what the NOI is telling me the cap rate is. What are general KPIs? For example if I get a deal and they're underwriting at 28% expense ratio. (zero management vacancy's at 3% and maintenance at 3%) I know I need to make adjustments closer to 40-50% and work from there. For example picking up a class C deal with median income of 40K at a 5 CAP = stinky deal vs picking up a class B (B+) median income of 120K 5 CAP = I'd buy that every day of the week. Thanks for all your content it's AWESOME!

[@andrewhaohuang289]

Thanks so much Justin for explaining it so clearly!!!

[@BreakIntoCRE]

Glad you found it helpful, Andrew! Thanks for watching!

[@JohnDoe-xm9ql]

Love those cap rates...

[@A.M.1.]

holy cow this guy still making videos. Wow.. high quality too

[@soonernation8226]

I can never hear your videos. I know you have good information just hard to hear.

[@2024Red-j5t]

I am currently holding stocks worth of 200k in a savings account waiting to invest in another huge opportunity. I've been thinking about going into real estate. Please is it a good idea right now ?

[@gwendymolly5953]

Yes its a good idea. Invest in real estate, ETFs and high-yield savings account

[@Blitcliffe]

@@gwendymolly5953 AI companies are said to be overvalued and might cause a market correction, I think it’s best you reach out to a proper fiduciary for guidance

[@wealthychronicle-i1u]

@@Blitcliffe You should De-risk your portfolios, shore up your core holdings, and take some profits while balancing your portfolio allocations. I’d also suggest you go with a managed portfolio, but even those don’t perform so well, so it’s best you reach out to a proper fiduciary to guide you, that’s what works for my spouse and I. We've made over 80% capital growth minus dividends.

[@dannielleemarie]

@@wealthychronicle-i1u I've been looking to get one, but have been kind of relaxed about it. Could you recommend your advis0r? I'll be happy to use some help.

[@wealthychronicle-i1u]

@@dannielleemarie Amber Kay Wright has always been on the top of my list.. She is regarded as a genius in her area and well knowledgeable about financial markets. I highly recommend her if you want excellent collaboration.

[@josephferrandino8682]

Justin, your content is super insightful. Thank you!

[@Tazangamoz]

💯

[@matthewsoto8114]

Started talking IRR lost me

[@gilbertopereira7925]

slow slow slow explanation

[@noureddineali2186]

I was going to watch your video but your facial expressions were just too annoying.

[@rosariog.9499]

Need help understanding this further. super newbie. I have a commercial property I bought with SAB loan in a opportunity zone. I bought it for 430k and owe 350k and valued around $550k. I want to buy a bigger commercial building that cost 1.4 million and sale mine. I think that building is a little too expensive and it has an Capital rate of 5%. I am a novice with no experience. Any advice on this? HELLLPPP @breakintoCRE

[@Walina-gv9ph]

The building DOES not have a 5% cap rate. The seller wants you to pay him $20 for each possible dollar of NOI. $20=$1/5% LOL If comparable properties have sold at a 10% cap rate that means they paid $10 instead of $20!!! $10=$1/10% These fake Gurus like Justin want you to believe that their fake cap rate is a "return" so of course you would want to pay them $20 for something only worth $10! Don't be a chump!