053: Effects of Capitalization Rate on a Dollar

Welcome to a new segment called “Chad’s Soapbox”! In this episode, we're going to be talking about the different expenses associated with owning a property - like utilities, property taxes, and management. We'll also be discussing capex - or "capital expenditure" - which is all about new investments that can add value to the property. Finally, we'll be giving an overview of how to calculate a property's cap rate, which is a key metric in determining investor interest.

[00:00 - 01:38] Opening Segment

• Cap rates and its effect on a dollar
• • Net operating income minus total operating expenses
• Cap rate is a measure of how a property is priced, relative to its net operating income
• • The lower the cap rate, the more overpriced the property is

[03:09 - 10:01] Measuring a Property’s Cap Rate

• Property tax, insurance repairs, and maintenance
• Capex versus Opex

• Operating expenses are everything

• Determining whether a renovation is a capex or an incidental expense
• Keeping the property’s capex as low as possible
• • Maximizing the returns

[10:02 - 11:16] Closing Segment

• Final thoughts on capital management

Quotes:

“When you're looking at a property and you're trying to decide whether or not it's worth investing in or not, what you want to do is figure out what the cap rate is on that property. And the cap rate can vary quite a bit depending on the market. It can be really high or really low.” - Chad Sutton

"When you're renovating units, it is also very possible. When you're doing a value add plan on one of these buildings, it's also very possible to determine if this item is something that I can put in the Capex area below the line." - Chad Sutton

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Real Estate Runway Podcast is all about alternative business and investment strategies to help you amplify life, and maximize wealth! Click here to find out more about the host, Chad Sutton.