OfflineOkay, I found this listing, and it sure sounds interesting, but I am not understanding all the terms and numbers. This is a coastal property:
"Nestled up the hills in the trees rests 18 cheap condo conversion ready apartments for sale, 2 buildings consisting of 6-2 bd and 12-1 bd all with blacony and views of the bay, airport, sunsets. and mall. High school and JR high walking distance. Alway 100% occupied. Private carports, storage and on-site laundry. OWC with $400K down, current 1st is 3.8% and assumable. $120K GSI. 7.5% current CAP rate. 2 daily flights to and from Portland and SF. "
So, I definately get OWC, and I get 3.8% assumable(!!!!), but I don't know what "$120K GSI" is, and I don't know what to do with the 7.5% current CAP rate. I was just learning about CAP rate today, but I am obviously not understanding it properly.
THANKS!
Tracey R.
Hey there......there is a glossary on the left of the site.......OWC = Owner Will Carry
BUILD your knowledge base....it is your ARSENAL to wage war against disbelief and the negativity of the status quo. You need your weapons......It's your choice whether you carry them or not.
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Hmmm, I still can't find GSI - I will try googling for that in a minute. I did know OWC, and I sure understand 3.8% assumable - LOL - that's what cought my attention!
Is 7.5% a decent, good, great CAP rate?
Tracey R.
Gross Scheduled Income
(GSI) The total annualized scheduled rents for an investment property at time of sale or projected for the first year of ownership, assuming full occupancy.
NOI
Net Operating Income: To establish net operating income (NOI), all operating expenses must be deducted. As bills are paid, every item that can be classified as an operating expense gets deducted from the income collected.
Cap Rate
Example:
Say the property has an NOI of $125,000, and the price is $1,125,000.
$125,000/ $1,125,000 = 11.1% cap rate
But what does that number tell you? Does it tell you what your return will be if you use financing? No. Does it take into account the different finance terms available to different investors? No. Then just what does it show?
What the cap rate above represents is merely the projected return for one year as if the property were bought with all cash. Not many of us buy property for all cash, so we have to break the deal down, usually by trial and error, to find the cash on cash return on our actual investment using leverage (debt).
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Thank you!! That tells me a LOT more!
Tracey R.
Sis is right on. There is nothing special about a 7.5% cap. As stated, it would be a 7.5% return on your money if all cash.
As an aside, there is often a sort of perverse relationship with cap rates. Yes, the higher the cap rate the more income you get for the price. But there is also an "implied risk" to the cap rate ie at very high cap rates like 18%, there is the implication that the cash flow will NOT materialilze eg lots of vacancies.
Also, check the 3.8% rate. I would guess it's an adjustable loan- at least at some point. Maybe fixed for a few years then adjusts.