While our business is primarily focused on how we can buy and renovate properties to redevelop them into homes for new buyers or hold them as rental properties – we are also advocates for other investors. But not all investors are long-term players. Many are just getting into the business with the purchase of a duplex or maybe a three-unit multi-family.
Evaluating those deals isn’t hard, but it’s not easy. Especially if it’s not your ‘day job’. There is a mountain of software or excel spreadsheets littering the Internet that you can use. There is a new app coming out that looks promising. It focuses on the primary / initial indicator when evaluating a rental property. Cap Rate. Simply put the Cap Rate is the % that is related to the Net Operating Income (NOI) divided by the purchase price. For example, if you buy a property for $100,000 and it has an annual Gross Operating Income of $10,000 (before expenses, but excluding the debt service) with a Net Operating Income of $5,000 – the CapRate is 5%. $5000 divided by $100,000 is 5%. Now, is that a good percentage? Well, depends on what market you are looking to invest in. That might be average or well below average.
TapCap for Investor Clients looking at Multi-Family Lending
TapCap might be a good tool – take a read of the article and sign up for early access.