brentm's blog

Ok, so you have invested a lot of time and money going through Dean's courses, and followed his instructions to the tee. You have worked hard developing your Buyer's LIst, and finally started making offers.

Your first offer was rejected. So was your second. You don't get discouraged, you get determined. Your third and fourth offers were rejected too. Finally, on your twentieth offer, the seller accepts and you have your first deal, now what?

After a well deserved celebration, you sit down to think about your next step. Then it dawns on you, how much are you going to mark up your property?

It is only natural for property owners to fall in love with their homes over the years as they live safely and happily with their families. As they rack up fond memories their home becomes more and more valuable to them. This is great, at least until it is time to sell their house. They let these feelings influence the price they think they should get for their home.

This is a challenge for retail real estate agents who want to list their house at a price that will sell quickly based on comparable sales. The homeowner will feel that their home is superior to the comparables because love is blind, and theirs is worth more.
This is problematic and will cause a delay in getting the property sold.

When evaluating and comparing income properties, you
deal with cap rates. The cap rate is basically the return you will receive on your investment after expenses, but before debt service.

Example: If you purchase an apartment building for $1,000,000 and you receive $100,000 annually, after expenses, your cap rate would be 10% ($100,000 / $1,000,000).

The seller will want as low of cap rate as possible because the lower the cap rate, the higher the price. Conversely, the buyer wants as high of a cap rate as possible which will mean a lower price.

Think of it this way, if you are an investor and have $1,000,000 in cash, you would rather put it in an investment yielding 10% rather than 8%. But if you are a lender you would only pay 8% rather than 10%.