Cap Rates in Real Estate: Real Estate Investing Made Simple with Grant Cardone LIVE!

[Music] foreign [Music] hey welcome to the cardone zone every monday 12 p.m eastern standard time sometimes a few minutes early sometimes a few minutes late grant cardone here and i come to you every monday to share with you what's going on in the economy with your money and often more often than not because i love real estate so much i talk about the real estate game at the end of this today we're going to be providing a real a real estate training uh mentoring program that we put together we've been a couple weeks right johnny i think this is week number three yes yes yes yes and we're going to be doing a summit uh in july july 26th i think is the date three day summit in july grantcardone.com forward slash summit grant cardone.com forward slash summit three days and what we're doing is some of the people at the end of the show today some of this audience will stick around and ask questions about real estate about deals they're looking at and they'll have questions and or deals at the end of july at the real estate summit we're going to be actually meeting with investors lenders there's going to it's going to be a phenomenal phenomenal audience of people from all over the world that spend three days with me talking about real estate game and today is part of the preparation for that and for the rest of the audience out there on youtube and facebook and spotify and itunes um if you want to take advantage of this please do take advantage of the information here if you're on youtube hit the notification button and make sure you get these updates today i'm talking about cap rates and real estate cap rate the definition of a cap rate is basically the rate of return the rate of return that you would expect on a real estate investment if you paid cash uh the the investopedia by the way says the capitalization rate also known as the cap rate a lot of people misunderstand this cap rate thing is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property end of sentence this is actually not the correct definition by the way there's a lot of misinformation on the internet this is one of them this measure is computed based on the net income which the property is expected to generate so cap rate it and and i'm explaining the whole thing to you how to use this this is basically the net income net income or net operating income divided by the price paid that's how you compute it okay so net income or net operating income also known as the noi and you really really really want to understand this not just this way but i'm going to show you a bunch of different ways to compute this and use this you're going to need this by the way to figure out what to pay how much to sell for if you're a seller and you're going to need it to figure out what your debt what your lender will give you for this deal it is used to estimate the investors potential return on their investment in the real estate market okay but that is not the only reason cap rate is used okay it is used to figure out what you can what price you can pay also what price you can sell for uh what you can do for your investors because if you don't know the cap rate you don't know what you can do for your investors okay and it also tells you something about the grade or level of asset meaning if you told me there's a six cap or an eight cap or a tin cap or a twelve cap well i'm going to know that this this this product i'm gonna almost kind of be able to tell you where what city it's in okay so the greater level like there's a b c d properties there's also a b c d locations there's a b c d markets and the higher the cap rate okay probably the less desirable the market the product or the location mondays mondays is about real estate folks cardone zone is about providing you with real estate information the reason i'm so committed to your money and your economy and talk about real estate so often is because you cannot live on planet earth and get away from three topics food water real estate you need a place to stay you will either pay for where you stay or you will be paid for where your money stays okay so what i do is i take my money and the first thing i do is i worry about where my money's gonna live before i worry about where i'm going to live some of you've heard me say don't buy a house don't buy a house don't buy a house you know why because i want my money to live in housing and pay me money so i can house wherever i want cap rate price paid price sell investors grade but one other thing the other reason you have to know about cap rate is the debt in this order okay we're talking about cap rates today in this order in the order of importance senior importance the most important thing is the deal meaning the real estate for those of you note takers out there the real estate is senior to the deal it's not the second most important thing or the third it is the single most important thing okay the second most important thing in a deal is the debt it is not the cash down most people do this in the wrong order they look at how much cash they have okay i got a hundred dollars what can i buy i got a thousand dollars what can i buy i got ten thousand dollars what can i buy this is why people bother by the wrong real estate is because they look at how much they have when you're buying real estate you're not going to the grocery store this is not a trip to targets for christmas and you got a budget number one is the deal do not compromise the deal type the better the deal the more money you're going to make the better the deal the easier the debt is the better the deal the easier number three the investors are okay first i worry about uh this this in this case i'm sorry not the not the investors but the equity the equity could come from an investor or it could come from mom dad yourself your cash account it could come from your retirement account about 30 of the money that is invested with me at cardone capital actually comes from a wrath a 401k or an ira people are like i'm getting my money out of merrill lynch and i'm gonna put it with grant cardone and not worry about it at cardone capital okay the fourth person that the fourth group of people that is involved here is obviously the tenant i wouldn't put them last this list is probably 10 things long so i'm not putting the tenant last because if you violate any of these people the deal if the deal is not good you can't take care of the tenant if the debt's not good you can't take care of the tenant and the equity okay if the deal is bad then the debt the equity and the tenant are all at risk so i'm not trying to say that one of these is more important than the other but if i was going to lay them out i would lay them out as number one the deal put your attention on the deal the better the deal the easier number two and number three are okay so what is the cap rate mean of a deal the cap rate of a deal looks like this let's say there's a deal out there and they they they disclose that the deal is a six cap and i look up and it says to be sold uh to be determined tbd i could find those deals all over the internet or maybe hff a group or uh cbre or cushman they they sent you something and you see this thing this should sell to a six cap priced to be determined by the market to be determined tbd by market okay which means they're gonna basically have a final date they're gonna have a call for offers you'll see a cfo to be determined by the market okay you'll see these little acronyms call for offers and they say the call for offers is going to be july 4th to be determined by the market okay get your offers in blah blah blah call this number email this etc okay and they say this thing should trade close to a six cap but you don't see a price how do you figure out the price if you know it's gonna be a six cap or maybe you got the guy on the phone hey what cap rate is their expectation oh they're going to be selling they're expecting price expectation we don't know what the price is going to be but we think it'll be a real six cap okay great and what noi the piece of information you need right here is the noi to determine the price you need two things what's the expectation expected cap rate and what's the noi of the deal and they say oh the noi on this deal is one hundred thousand dollars how do you figure out the price i take a hundred thousand dollars that's the noi the no i had the net operating income and i divided by .06 and it would suggest that they want 100 000 no it's gonna be more than that divided by point zero six six cap six percent cap so six percent is point zero six i divide by point zero six and i'm at sixteen million seven hundred thousand dollars okay sixteen point seven million dollars okay if it's a let me just bring it down let's say it's a ten thousand dollar noi noi is determined by the income less expenses okay income let's say the income on this deal is twenty thousand dollars a year less ten thousand dollars before debt this is before the debt number and i have ten thousand dollars of noi okay and they trading it for six cap ten thousand divided by point zero six means they are going to want 1.67 million dollars okay now bang bang the seller wants 1.6 million dollars now i need to determine is that a good price okay there's so many ways to figure this out is that a good price for this deal and what does six cap mean to me as a return the definition of a cap rate remember is if i pay cash cap rate is always determined based on a cash price not cash to the seller but if you paid cash for the deal and had no debt understand if the cap rate is six and interest rates are three i'm gonna show you what happens to the money okay watch see the spread right here see this spread this is why people this is called leverage right and this spread between the two the six cap and the three percent interest is where people use leverage to improve and enhance their returns so first thing you want to say is this hey look if the cat if the cap rate is six if i paid cash for this deal 1.67 million dollars and i paid cash man i got a lot of noise going on in here and i paid cash for this deal i would earn one point i would earn on six percent point zero six times one point six seven i would earn ten thousand and twenty dollars okay cash flow okay so if i divide that and i divide 10 000 divided by 167 some of you're like oh that's not a lot of money it's a six percent return six percent return is a six percent return it oh by the by the way the banks are paying you right now point zero one eight percent less than less than one-fifth of one percent so when you guys say a six percent is not good understand that the bank is paying you less than one-fifth of one percent one-fifth of one percent so if they're if you can earn six in a deal paying cash for it not a bad deal you're saying cash that same money at the bank this is really really important for you to know because the bank is going to be involved here in a second the bank the bank will pay you it would take you on this much money let me see that'd be 20 times five that's that's uh five times five times six it would take you 30 times longer to earn the same money at the bank 30 times longer 30 years by the way to earn six percent at point zero point zero zero two percent that's what the bank's paying you right now take you 30 years to earn what you earned in one year on this real estate deal so for those of you who think so six caps not worth the trouble boom you got you got freaking mental math problems you have some serious serious mathematical uh issues in your life see what happened what happened was years ago years ago people would not even look at a six percent cap rate deal but what happened in the last three to five years is interest rates not cap rates interest rates went to zero when i was growing up these interest rates were like six to ten percent so if the interest rate at the bank for cash is paying me six or eight i would always expect the cap rate on a deal to be higher than that because i'm taking risk i'm taking cash and i'm getting rid of it right so check this out now watch what happens remember this okay i got a six cap and i can borrow money at three percent so when i borrow money at three percent i'm gonna take that same deal at 1.67 million dollars and i'm going to put i'm going to put 400 000 down on this deal about 25 of that okay and i'm going to finance 1 million 270 thousand dollars the bank will not give me a 100 loan on this so i'm going to put about 4 25 of my money down i'm just giving you an average here okay let's say i put 25 of my money down right here the 400 grand is considered cash so what i do what how much do i earn on the 400 gram six percent remember it's a six cap so i would get six percent of my 400 grand but what do i earn on the 1.7 million well i earn three percent of somebody else's money and this is where you get the leverage watch watch the return on investment on the cash flow explode okay one two seven let's say if i could get an interest only loan i'm simplifying this my loan on this is 30 my loan on this is uh on this amount is 38 000 and what was my noi i forget what my noi was uh let's see here let's see we didn't have an noi i made up an interlab right so so watch what happens the million million 270 the debt is going to cost me a million 270 million 270 times point zero three is thirty eight thousand one hundred ten dollars okay the four hundred grand the noi was ten thousand the noi on the deal is ten thousand okay and let's say i have a million seven deal let's say a million seven deal divided by let's say 100 000 a unit okay so i got i got to make some assumptions right here right because i gave you i gave you an income over here um i gave you a a a gross income of 20 grand expenses of 10 000 and an noi of 10 000 now clearly if my noise 10 000 no bank is going to lend me a 38 000 loan okay so this assumption i made here was incorrect i just used the noi of 10 000 and i said hey they told me the bank told me or the seller told me they had an noi of 10 000 i'm trying to figure out what i can pay for this deal based on an noi of 10 000 however they got there right they could have got there by doing this they could have said uh the gross income of the deal is 17 units and a thousand dollars a month uh what is that 17 stay with me don't get lost here don't worry about it times 12 equals 17 times 1 000 times 12 oops 17 times 1 000 times 12 is 204 000 okay expenses on this deal expenses got to be at least 120. okay so right now i'm at uh i'm at eighty thousand seventy six thousand dollars of income divided by if it had this is 76 000 and for some reason they're telling me there's an noi of only 10 grand so either my deal is too big i put too many units in here i just made too many assumptions that weren't true okay when you go to do this deal then you're not going to have those assumptions okay so watch let me i'm just going to show you as i go to a deal and use cap rate and you're looking for misinformation in all your formulas like what just happened here okay what happened well maybe i got too many units in here and then i go online i'm like oh it wasn't 17 units it's 7 units there was a piece of misinformation or maybe it was misprinted and you find out there's not 17 units there's seven units that they're saying can be broke up into 17 bedrooms so when i do the math and when i start digging in i'm like okay that makes sense seven thousand dollars a month times twelve eighty four thousand bucks a year okay and the cost the expenses to run this operation when i dig in because there was no financial information to dig in i found out it cost about seventy four thousand dollars to run this operation maybe because they're stealing money from their operation and there's ten thousand dollars of noi how much can i pay for that ten thousand bottom line that's the question seven units it produces ten thousand dollars worth of noi how much can i get earn on that how much can i borrow against that and or pay for that or combination uh and and get it approved by the bank okay so now i'm gonna go back to my math right here i'm going to put 400 000 down i'm going to finance 1.27 million dollars and i'm going to see if my deal makes sense should i do this deal probably not because i still have too much debt yeah 38 100 i mean unless you guys want to lose 28 000 a year i probably would not do this deal so i'm going to go online now we're going to find a real deal i'm going to find a real deal a small deal something everybody can live with and think with and uh maybe somebody in the chat box throw me any city throw me a city or maybe you have a deal do you have a deal that's you know three or four hundred thousand or a million dollars and we can figure out what it's worth help me out johnny if you see somebody popping up okay let's try let's see i'm gonna pick one here i'm gonna put clearwater florida in just clear water oh louisville okay let's see let me just find a deal okay so look here's the deal right here let me just see if i can find a deal in here and this works in all kind of commercial real estate doesn't really matter what you're buying let me go to multi-family i could do this on a shopping center a restaurant a retail industrial office it's all the same math never changes and i should have come in here with a deal already done probably and let's see let me put in clear water probably going to be a tough market for clear water because there's so much uh there's so much um okay see this deal right here here's an architectural deal it says a 5.58 cap perfect example now they're saying this deal this deal they gave me the price they're like this deal is 2.8 million dollars and let's pretend it's at a six cap so i don't have to deal with the 5.88 um yeah that's fine i'll deal with a 5.5 5.58 i like that by the way i like it kind of being a exact number rather than a six you can't trust these round numbers so in this case what do you have you have the price you have the cap rate okay now what do you want to know the missing piece of data is the noi and the rent on the deal so watch i'm going to use the pieces of data that i have to calculate the noi you got to know the noi to know how much debt you can get okay so you're going to do this a thousand times so if you guys are getting confused the first couple times i do this don't worry about it you're going to do it a thousand times you're gonna do it wrong half the time and you do it the other half the time to make sure it's right i always do mine on a piece of sheet of paper like this i'm doing on this white board right now i'll go through it hundreds of times on one deals just to be sure i understand what i'm talking about so 5.58 i'm trying to figure out the noi this number right here is missing noi on the deal oops noi n n o i on the deal so if i take two eight times point zero five five eight my now in this deal is 156 000. 240 now why do i want to know that number because that number is going to determine how much debt i can get on this deal if i take that number and multiply it times 125 i'm going to find out times 1.25 if you have good credit and a good ex good good uh it's a good location and the bank likes the deal they're going to lend you they're going to say you can max out at 125 percent of principal and interest loan amounts debt we can lend you up to that number now you're having to back into numbers now you're backing into stuff to understand what the bank will underwrite on this deal so there's two two things two things one remember this i think i gave you this earlier why do you want to know how to do this one more deal how much to pay they already tell you what you're going to pay now i'm trying to see if i can make sense to the debt how do i figure out the debt because if you know the noi the noi determines the noi determines how much debt you can get your in your credit is not what determines how much debt you get the deal and the noi determine how much debt you get period in the story it's not how your credit score this is not a uh buying a belt oh yes you can you have a credit score of 720 you can you can buy the belt in real estate the noi is worth more than your credit score is the location of the property is worth more than your credit scores that's why i love this kind of real estate so much is because it can actually lift your credit score without you changing your credit score okay so so how do i figure that out okay watch this this is called depth coverage ratio meaning i need enough i need my debt coverage in a ratio by ratio right and that number is one two five two one three five it can go higher than that depending upon the confidence or the lack of confidence about the particular asset class so this gets a little tricky this is 156 000 of noi so in this case let's say the deal is 2.8 million dollars um let's say my my income on the deal is 320 000 that's my gross income that's income rent other parking vip trash any other stuff that you get is my gross income i spend 160 000 there in expenses management everything management taxes property taxes boo boo legal carpet rehab etc okay and i end up with 156 000 in the n o and the i okay how much debt can i take how much of this can be debt okay i think if i take this number times 75 percent uh because this number this debt number has got to be less than it's got to be less right this debt number has to be 25 lower than the noi number so i'm gonna i'm i'm not exactly sure about this but let's i don't have to be you don't have to know everything guys you don't have to be like i know every freaking formula perfectly just keep playing with it until it gets right okay so like 156 000 brian if i divide this by 1.125 will i get there i think i do some of these formulas i i don't use enough so yeah that's a hundred and twenty four thousand dollars 124 times 125 yeah exactly so watch what happens i i remember i went into a little doubt there and so i'm like okay if i take 156 156 000 and i divide by .125 remember i said 125 percent dcr meaning the debt is covered by 100 of the noi plus 25 125 so i divided i divided this number by by .125 i basically flipped this number and that tells me that i can have or carry up to a hundred and twenty-five thousand dollars worth of principal and interest i'm going to open this up to our mentor class here in a second but i just wanted you guys on youtube and facebook and wherever you're following me from maybe you're on spotify or itunes you're listening to this show every monday i do this hey make sure you turn your notifications on you're learning a lot of information let me tell you what's really cool is when you learn it and then i add to it again next week and then i add to it again so if you're watching or listening on youtube and you like this make sure you comment if you got a question we answer our questions on youtube i do my best to get in there and answer all the questions so please comment if i did some math wrong please i know i don't even need to encourage you guys you'll be freaking commenting about every little thing that i did wrong today hey i love you too and and the the name of the game is not to be right the name of the game is to make money okay it's not to be right on everything the name of the game is to know what you're doing do it enough times keep going over it that's why there's about 200 pages of this legal pad i waste legal pad just go through them i make mistakes all the time what i don't want to do is i don't want to make mistake when i buy real estate there's no reason to there's a lot of great real estate out there that can make you a lot of great money so watch when i go to the loan the bank and i'm going to be like hey look i got 156 000 of noi i want to borrow to a 125. now you have language you're communicating with the bank they're like that's cool i'm at a 125. how do i figure out how much money i can borrow at 125. 125 000 if i divide that number by 0.02265 that's just a little calculator i use i can borrow up to i think 1.99 million dollars if the interest rate is 4 percent if the interest rate is 3 i could probably use a .0525 where am i getting that from experience that i'm gonna be providing our mentors with and our summit attendees in july okay if i take if i take 125 000 worth of principal and interest and divide by .05 because i'm boring money at three percent i could actually borrow 2.3 million dollars i think that's right 2.3 million dollars times .03 yeah sixty nine thousand dollars uh yeah then we're going to be making some money right here remember this not fifty six thousand dollars my debt is going to be 69 grand uh this deal is gonna make seventy thousand dollars seventy thousand dollars of free cash flow and i took a six percent return and we ended up making um a six percent return what did i put down on this deal what did i say i put down on this deal johnny do you remember this deal was 1.67 167 i'm putting down 400 grand 400 grand earned 70 000. 400 000 divided by 70 70 000 divided by 400 grand oh i'm sorry i'm so sorry i just took a six percent return and turned it into almost 17 okay that's called leverage folks that's called leverage okay now so when you take six percent six percent cap rate and you borrow three percent money what's going to happen okay your returns are going to explode if i take six percent cap rate if i take a four percent cap rate or five percent cap rate or 10 cap rate and borrow money at three or four percent you collect money on the difference so if i'm buying a deal at 1.67 million dollars and i'm putting 400 000 down this is going to earn me six percent right because that's what i paid i paid a six cap for the deal if you paid cash for the cap rate the cap rate is based on a cash price i put 400 grand down so i know the first six percent is only gonna make me six percent check the box what i want to know is what do i make on the money that i got for three percent and that number should double double your six percent return unless you have some ways to improve the value of the property which could be and have nothing to do with the property in this case all i did was start raising my noi because if i can increase my noi by a better operation i could take a six percent return turn it into a 12 return make it a 17 return just because maybe i reduced my expenses of operation that's what we do at cardone capital by the way some of you out there are paying management fees to five and six basically ten percent ours are two point five percent uh and i about everything uh you you have legal fee you have legal fees of 25 000 check this out watch watch what happens you do a deal and maybe the legal fees were 25 000 and the deal was 1.5 million dollars my legal fees are 50 000 and my deal was 160 million dollars who paid less than legal fees as a percentage of ownership my 50 grand i paid double the fees it was consumed by 160 million dollars worth of purchases i'm paying point zero zero three cents for every dollar i invested you're paying 25 000. literally i'm paying three pennies though your legal fees are crazy uh it's three thousandths of one penny per thousand okay 25 000 divided by 1.5 million that's why bigger deals are better you're paying you're paying four times i'm sorry five times more for your legal fees than i am 50 times i'm sorry 50 times more for your legal fees than i am okay anyway you get the point you're like no i don't get the point i don't even know what you just said it was so complicated that's a problem and that's a problem that everybody in real estate goes through in the beginning and that's why so many people in real estate end up just eating small deals because you're like i can't figure this out i don't i don't understand this this is the simplest game you will ever play in your life because what i just did up there it's complicated to you doesn't mean it's complicated it means it's complicated to you and it was complicated to me in the beginning too until i'm like i'm gonna figure this out dude okay because this is as simple as milking a cow it looks complicated it looks dirty it looks nasty it looks scary until you get it down then anybody can do it okay all right um hang in there every monday i'll keep coming here to support you and help you if you guys just want to watch cool if you want to be part of our mentoring program come to our three-day summit in july grant cardone.com for slice summit the seats are like 997 freaking three days with me at the turnberry hotel right here in miami it's gonna be a fantastic event the room's gonna be loaded loaded with well-qualified people investors real estate uh syndicators it's going to be it's going to be loaded with uh we're bringing some of our banker friends over here to talk to you about debt to make introductions to you it's going to be a a star-studded highly qualified room of investors people committed to real estate there might be some bitcoin people there who knows could be but mostly it's going to be a bunch of people that are freaking in love with commercial real estate shopping centers industrial multi-family hotels like i'm going to have players all over the place that you can tap into work with partner with get money from debt from or maybe you even come and pitch your deal and you get money for your deals if you have a 200 unit deal or bigger and you can't buy it by yourself please bring your deals okay you want to do business with me let's do some business with me and and when we do business man i understand what a cap rate is you guys you guys that are going to come down to miami and hang out with me do not come down here talking about i got a tin cap because i'm not going to even listen to you after that you got to know what i want just like when i go to a bank if i go to a bank and say hey man i got a deal in freaking austin and they're like yeah we don't lend in austin dude i just why did i even waste my time with a conversation you have to know how to talk about dcrs cap rates location and the type of investment the the the the banker may be an apartment a lender but he might more likely be not not more likely but he might be more interested is what i meant to say in office i don't know maybe he's interested in shopping centers maybe he's a land guy but you got to know who you're talking to about what and how to talk to them there's people in the room that are going to be in the room they will only buy seven and eight and nine caps they don't they will not invest with me in my real estate because they don't see what i see so know who you're talking to know how to communicate with them this language will not change this language is the same in canada as it is in dubai as it is in detroit the the language will not change it will it will stay the same the nomenclature the language of this art this space is identical you got to know what the cap rate is you got to know what your noi is you will have to know the dcr and what i'll do is i'll continue to go over these with you every week if you want to get submersed in it meet some great contacts do some great networking raise money for deals put money in deals maybe you want to come and lend money to these people to be back back great real estate to cash flows um last thing i'll tell you is this i was doing a deal last month and the guy says you don't quite hit our dcr i said hey man i'm putting 40 million dollars down i don't need to and he's like huh i said my dcr is coming in at 115 not 125. i'm putting 40 million dollars of my cash in and he's like you got a good point there grant we'll approve this deal i did not have to hit the dcr because the amount of money i was putting down was so big and the location of the property so good they went back to their committee and made an exception on their dcr okay you're like man i got lost again i was right there and i got lost again that's cool stay lost till you find your way but don't quit the journey the real estate journey will not let you down if you don't quit it about 50 percent of the people that buy their first deal never buy a second deal 50 percent of the people that buy their first deal never buy a second deal because the first deal was not a good deal for them if you let me help you i will promise you your first deal will be a great deal your next deal will work your first deal could make you a million dollars if you just hang in there with me if your first deal makes money i promise you the chances of you doing a second deal go up by a thousand percent my name's grant cardone you guys that are with the mentoring program stick around with me i'm going to answer your questions we're going to do like 35 minutes of q a with a mentoring team thank you for being here today god bless be great and remember cash flow is important and vital to life so i say peace i say love and i say cash flow okay you guys in the mentoring program man appreciate you guys coming to the summit we got we got the hands raised we got them up all over the place um i want to i want to start with george constanzo i just unmuted you my friend how you doing hey grant thanks great to be here good information so i want to know what your thoughts are on buying properties around colleges like multi-unit properties around colleges so george it's a great question i do not love it i've been i've been i've been right and wrong on this topic i i i'm worried i'm worried about colleges have been for years so i've had many many many many opportunities to buy college campuses tallahassee around the houston market around some big college campuses okay so i've avoided it because i'm worried about i'm worried about i'm worried about the end product at some point this thing is going to fall apart you got too many colleges in america the kids are paying too much money and the product the the the the deliverable is garbage and sooner or later the parents in this country are going to wake up and say this when covet happened every i can't say every but a majority of the multi-family apartments that depended upon student student housing dumped out nationwide none of mine dumped out all mine increased we increased occupancy across our entire portfolio so i'm just saying like i want the other thing i don't really want is i don't want a short-term renter you know i know it's popular but in real estate you want to avoid losses right so i all i'm doing is going for the fat part the of the market the beefy part of the market charge where i'm like okay i want a long int a long long term user 10 to 14 months that's not even a very long time with the chance to renew these people so i keep them two or three years where i build communities of people around communities of people uh and provide them with a great place to live i'd like to know the tenant and and i don't really get that in in college now when you do college right when you do it right you're doing it in ohio and you're like hey man ohio those campuses aren't going anyplace uh you go to you go to you know these liberal colleges where the the the parents like i got to send my kids to harvard they're never going to disappear but there's got to be some of these colleges that don't last particularly with online coming and covid pulled the freaking band-aid off jerked it off and said hey we can get you through class without you ever going there hope that helps yep thanks appreciate it thank you man max i'm max valdis and then we're going to go to nicholas jacques jankas i'm trying to unmute them johnny can i do that yes sir yeah go ahead max no it's not a mutant though i click on the unmute johnny you shouldn't work when i click the unmute yes and then they got it accepted but let's move on to somebody yeah you got to accept it dude when i do it okay okay go ahead nicholas hello so you uh i've been looking at a lot of the multi-family in the area and there isn't anything for like a thousand miles and the classes that i have available are either c or b and what would you suggest in that and i could get some really good deals in like uh mobile home parks i can't see them johnny yeah good dude look look look for look when there's scarcity that's an opportunity so if you're telling me there's no a and b in your market what market are you in by the way nicholas i'm in montana okay yeah because there's a shortage of housing in montana right you had this big influx of people that came in so those b and c's that we don't buy down here man i would be looking at those b and c's uh in montana to buy so i don't know if you go i don't know if there's any of those asset classes johnny i'm fixed on this screen can somebody fix this screen so um let me just let me just put montana in here people got to live somewhere man look when i move from california to montana the first thing i do is i don't buy a house i rent unless you're rich if you're rich you know your kanye and what's your name well they're like hey let's go buy a ranch over there and then we'll just blow it up they're going to sell it anyway they're not going to stay there i guarantee you he will not stay in montana um so let me just see here man i got uh here's the hogan the hagen block apartments and this is a this is definitely a b b minus probably a c product okay 1.5 million dollars in montana i don't know where that's it i mean i have no clue where this is right it's going to have an eight and a half cap so what does that mean to me it means point zero eight five point zero eight five times one point five million equals it's going to provide 127 thousand dollars worth of of of uh of noi a year so if i borrow if i borrow on this deal one million two hundred fifty thousand dollars times point zero four percent my debt is going to be 50 grand i'm going to make 77 000 on this deal and i put uh i put four hundred grand down let's say i put four hundred grand four hundred thousand i'm sorry uh seventy seven thousand dollars in cash divided by 400 000 it's a 19 return 19.25 return okay that's before i improve the product now if this deal this 18 units fully renovated if i could possibly raise the rents just 100 times 100 times 12. if i could do that i just improved the property by twenty one thousand dollars now my seventy seven thousand dollars of cash flow goes to ninety eight thousand dollars of cash flow divided by the four hundred grand that i put down and now i have a twenty four point five return so look guys just because it's b and c don't mean you don't want to buy it i i have b and c property i bought a b i bought a c property deal in boca raton about five years ago i made five million dollars in that deal and it cash flowed eight percent a year so they're going to tear it down to the ground the guy i sold it to a guy this is a true story i s i bought a deal for 12 million the guy before me paid six million okay they thought they killed me i sold it for uh i sold this deal for 16 million dollars and i bet you it's worth 30 million today and all this happened in the period of four years okay i made this guy made six million i made 4 million plus i made 10 a year and this guy's probably going to make 14 million and you know what they're going to do right here they're going to scrape it to the ground they're going to literally take it to the ground they're going to build a freaking vertical they're going to probably go 13 floors and build a 200 million dollar building there so if you're in the right place at the right time you've got traffic coming in the one thing i worry about montana man is you have these california snowflakes they come in and they have one winner one freaking winner and they're like uh yeah i'm out here i'm out of here adios nicolos hope that helps man how about louis louis how you doing brother louis and then we'll go nicole louis norris come off of a mute sir there you go and then we're gonna go nicole green how you doing sir yes sir uh so i threw up on your deals at grant cardone on the email i threw up uh two deals out of mcallen texas uh and then one was uh one was uh 236 unit apartments at villarreal and then the other one was 156 units at santa ana apartments now when i was looking at the uh obviously the cap rates are really low in the area yeah but what i didn't understand was the fact that like these units are are massive and they got such a low cash flow rate so i was wondering if you could run over the numbers on this yeah sure sure so tell me tell me about the deal which which one of these deals you want to look at uh well let's look at the villager gal one because that's the most interesting of it okay 236 unit apartment uh north chai street it's uh almost downtown i'm looking at it average occupancy is 82 okay okay 82 occupied okay uh price is 35 mil 35 million dollars okay and then we want to know the so first thing i'm going to do here is i'm going to take the 35 divided by the 236 and say okay i'm at 148 000 a door correct that's christ per unit yeah now just so everybody understands what happened here in miami two weeks ago two mondays ago whenever it was with this building collapsing every one of these older buildings these buildings are 30 and 40 years old trust me within in builders codes nationwide particularly here in miami for sure in florida you're going to see you're going to see all of a sudden a new regulation series come out where you're like oh you got to reinforce beans steel beams you got to go deeper we had to go 70 feet now you'll have to go 150 feet deep i mean what watch the cost of the cost of regulations is going to be more than what it costs to put bricks and plywood into a building so when that happens when you have more regulations you have the cost of everything go up so how do you feel first of all first of all how do you like the location of this asset well it's pretty centralized not too far away from all the major highways okay it is uh uh from the airport it's about a 10 minute drive which is probably the only weird part about it is that it's pretty close to an airplane i don't know what that how does that i don't love that i don't love that if you go to hobby airport or if you go to houston international airport if you look at the property around the airports chicago around the airport phoenix arizona around the airport los angeles right around the airport those are typically those are typically not great neighborhoods right right right but but it doesn't mean it doesn't mean that you can't make money there okay right but typically when you go to a city and you you're in the neighborhood of an airport it is typically not the the better neighborhoods it doesn't matter okay now what cap rate what cap rate are they trying to get for this property okay so the cap rate on this property right now is uh uh they don't i didn't have the cap rate written down when i did this i did this last week okay good so you don't need it you don't need it to get it but but let me give you the main numbers there you go okay good 35 million price per unit is 148 305. um the do you want the gross income or do you just yeah give me the gross income i love the gross income gross income is two point one nine seven four one one okay okay and the noi right now at eighty-two percent occupancy is one point two six seven three four seven but and how did you get that that's that's their numbers from their rent roll okay they're in their rno as what 1.267347 okay good so let me just give you some information on this thing i i don't i don't trust these numbers if this is the gross income is that the gross accepted income or is this the the if they were 100 occupied or is that that their full gross on the 82 percent uh i don't know but i don't know about the gross income but uh as far as i looked when i was looking at the rent roll it was that was the correct number okay good at 82 so okay good so i'm going to take that's good so i'm going to take the 292197 and i'm going to divide divide that by the 236 units because i want to know 2197 and i want to divide i want to see what they're getting on their rents now i could easily call the place and just say hey how much is the rent at your property right now you probably should do that by the way um two two i know i know they're pretty much below a thousand like they're right in that range there's a few right at a thousand but most of them are below like hitting that 990 yeah no they're 776 okay the rents are 776. so does that feel like a fair uh or underpriced in the market or too high what does that feel like today hillary this is george with premier national i'm a licensed loan officer i'm calling for the 1pm appointment you scheduled is that us no that's george can we can we mute george yeah george is doing deals man so so look this feels good to me right i look at this market i look at mcallen i'm like 776 that's cool but now i got a question if the rents are fair why is it 82 percent occupied yeah that's what i want to know have you looked at the property that's the other thing yeah i'm looking at it look at the property it it looks like it's a it should be like a b plus a like it's nice it's resort style dude it looks great right it looks great this is this is what's really confusing me about this property yeah it's like why is it only 82 percent occupancy okay but look let's not let yeah because i think they just rehabbed it i think they just rehabbed it and they're probably moved out an audience and they're bringing in a new group of people but this is what we should do this is a great deal by the way to look at and to do some work on so this is what i would do on this deal if the noi is one two six seven and i divide this is something i did not cover earlier but your bank is probably going to give you anywhere from a 5.5 to a 6.5 debt yield the debt yield is tied in to how much they can lend so if i divide this number one two six seven divided by .65 i'm going to be able to get a loan on this deal for 19.5 million dollars okay in some cases i might be able to get a loan for divided by .055 of 23 million dollars okay so so i'm going in backwards i'm doing the deal backwards right now i'm go i'm using a different metric by the bank the bank doesn't really look at your deal first the bank looks at i'm just going to ask the banker hey are you using a five five debt deal are you using a six five debt yield and then he's gonna be like oh this guy knows what he's talking about he won't even have that thought actually because this is just bank or language okay it's called debt yield okay it's it's what the debt is yielding it's so they can feel like they're cool and comfortable how much did you say they wanted for this deal 35 million would you say they wanted for the deal 35 yeah so 35 million dollars right so let's say i hit this 5-5 debt yield this is a 5-5 debt yield so i got 35 million dollars 23 million bucks of debt i got 12 million dollars i'm gonna be able to tell the seller man hey dude i gotta find a lender that's gonna do a debt deal i might even tell the seller who's gonna do a five five debt deal on this deal what lender are you talking about because this seller or cushman or or or cbre or or whoever you're doing business with marcus and miller chap whoever those guys know about this limitation see when you're buying a piece of real estate this big they know that there's i'm involved the seller's involved and the bank's involved and there's nobody not going to have a bank involved in this deal sooner or later it's either now or later okay so check it out so do you have 12 million dollars to put down on this deal no i don't have 12 million dollars okay that's that's cool that's cool but let me tell you something if it's the right deal come to our summit i guarantee you i got people to grant i'll be there yeah i guarantee i got people in the room that that'll do this deal because watch what happens here remember this noi right here that noi one two six seven i think that's what you said the noi was now i'm gonna figure out now i'm gonna figure out does my deal work okay so if i put 12 million dollars down i need a return on my 12 million right okay so if i if i borrow 23 million dollars i can get that money at three three three two five today so the debt cost me 747 267 747 i'm gonna make two see i'm trying to figure out whether his deal is worth that buying or not okay this is free cash flow how much did i put down 12 million dollars so if i'm making 520 000 a year divided by 12 out this isn't about the deal anymore by the way it's about the return 4.3 percent ain't nobody going to buy that deal for a 4.3 percent return right unless unless unless unless you're telling me that we're going to go rent 23 units tomorrow at 776 dollars times 12 and we're going to collect all the money because those that 10 not the full load i'm not going from 82 to 100 i'm going from 82 to 92. if i can get to 92 i'm going to pick up another 214 000 in cash so you're saying no to the deal and i'm over here saying oh yeah we gonna do the deal yeah well i i want to do this deal i think i think like you've said before usually when you see something like this it's bad management am i correct uh it could be not always okay but here's the deal bro here's the deal check it out you got to do all that work to get a 6.08 return and you're in mcallen texas right now would you rather be in mcallen texas or would you rather be in this deal right here uh let me see for the same for the same money which one of these deals would you rather be in mcallen texas or would you rather be in this deal damn it get rid of the move-in special which one of these deals would you rather be in oh i'd always want to be in a great deal are you kidding i'm just saying like i'm gonna earn over six percent on this deal this year of course okay this deal is four years old not 40 years old it's in miami not mcallen so this is when all of you out there is investors okay hope that helps man i hope that helps with you just got to find out a little more about that deal when you're comparing deals do not be fixed in a market and do not try to do these deals by yourself folks you're not going to do it by yourself anyway you're going to need debt you're going to need investors and you're going to have tenants and you don't want to over leverage your deal and that's why the bigger the deal that's the other thing is you're not going to know this until you do the big deals but the bigger the deal the more attention the lender is going to give you on the deal to make sure you don't make a mistake on that deal and um it's a cool deal though i like your deal man i actually like your deal i just think they're probably asking too much for it they're probably trying to kill somebody because this market's insane right now and and the problem with an insane market right is when you start putting 12 million dollars down on a deal this same buyer uh this same buyer i'm sorry this same yeah the same buyer of that deal is gonna be like for 12 million man i can go to houston i can go to i can go to dallas i can go to austin i can go to miami i can go you know i can go to some hotter markets uh it doesn't have to be mcallen doesn't mean it's not about a good deal by the way okay let's go to nicole green asked to unmute the cold green uh maybe nicole's not a good person because she doesn't have a live video going right there no i can't yo what's going on nicole okay hi thanks for having me hey do you have a deal or do you have a question i have both a deal that um you know what is this verse is a small deal okay let's do a small deal okay i just have a um a small property i'm located in new york and actually in new york city actually so i'm trying upstate new york in albany so i so what information do you need um for the deal that i currently have that i have an issue because the bank denied my loan okay tell me tell me about the deal okay it's um the address is 75 catherine street albany new york okay it's a five bedroom duplex five bedroom duplex so we got two units and what are the rents the rents are averaging 14 for the three bedroom unit and around 1200 for the two bedroom units okay 1200 and that's 2600 a month right correct and uh so 2600 a month time if you if you manage it yourself it's 31 200 a year how much do they want for the property uh they i offered i i offered 175 what they were asking for 1.99 and they accepted the offer for 175. they they accepted your offer yes okay so 175 thousand dollars um and you're gonna put what three percent down five percent down no actually twenty five percent so i'm putting down forty three thousand seven fifty okay because because of credit or what because of the investment property and i'm not going to be living on the property so yeah well why don't you live in it why don't you live in it uh their reason is that um i can't due to the fact that i work live and work in new york city and the commute is not oh got it got it got it uh-huh yeah i say yeah that's what he told me so i couldn't swing that one yeah yeah okay good so so let's just figure out how to do this okay so 131 thousand dollars what was the interest rate on this deal do you know the interest rate that i had was three point seven five okay so four percent and that's fifty two hundred dollars a year in note and that's uh you're going to earn 26 000 if you if you twenty six thousand dollars they're going to pay the electric in the water and to fix stuff and everything you know the tenant will be paying the the electricity and the gas who does the tenant right the tenant yes okay and so you're gonna have property taxes out of this you pay that that's correct yes okay so she's not gonna collect okay this is the note on the deal so let's just do this she's probably gonna spend ten thousand dollars a year uh in expenses i'm probably high there but maybe not for new york because you people are insane and fifty two hundred dollars um so let's see what she's going to make 31 that's the debt that's her debt payment and that's expenses so 31 000 and i might be low on that do you know what the property taxes are on on the property it's um it's 283 around 283 a month about 3 000 for the year 3 000 for the year three yeah yeah three thousand something yeah okay good so i got another seven thousand for other expenses okay so i don't know this is right but she's gonna she's gonna be left with about 16 000 bucks a year or maybe you know 16 grand a year so watch 16 000 a year if i divide it by the 44 000 she put in it's a it's almost a 38 return it's a great deal guys like okay it's a no-brainer now the question is where do you get your 44 grand from and do you want in that deal if i were you what i would do is i like this deal but i don't like putting 40 grand in that deal what i would do is i would move closer to where you are and tell the bank that you're going to live in it with the intention of living in it and then if you change your mind and not live in it then good for you okay i have another question because then you could do eight deals you could do eight deals around new york not one deal in albany okay okay okay gotcha but the other question i have is i think i made a boo-boo with the um with the the deposits because i got some money um from my son for the deposit which i did as a gift so i don't know if that was right if that's the reason why the bank delay on me and deny the loan because everything was pre-approved everything was going well it was in on the writing i went away i came back and they told me that they deny it because they can approve my assets and a whole you know a bunch of other shenanigans yeah yeah so they're like hey where'd the 40 grand come from huh yeah but i did have the gift for seed i did send them the um the the copy of my song right right right right even the gift for seat may be a problem that's why i'm telling you i would re restructure your deal stay around new york stay around where your work is and i would go get you a duplex in your market or or even don't use debt do a seller carry your debt and and you're in the game you're in the game you know you're you're learning the game guys if you get blown out on one deal don't worry about it okay i've been blown out on a a hundred deals i have missed didn't get couldn't get somebody else got it so um i think i think you're off to a great start you definitely have an eye for finding real estate that makes money you know new york is not going away for all of you that say new york is a a pit hole and people are never going to go back to it again trust me they will rush back to new york faster than they rush to montana okay they leave and then they come back because they ain't no there's not not another place in the world like new york i know right albany come on man there's a million albanies okay let's talk to edgar edgar tavares what's up my friend hello grant how are you good thank you very much for your lessons and all of your time appreciate you my friend grant i have okay i have two questions for you grant uh i'm from portugal from lisbon uh the first question that i want to know it if you are able to do deals in lisbon portugal 1000 okay great uh i have a um this market let me explain this market uh in portugal we have an issue with the regulation with the law because of the the rents so for a portuguese person it's better to buy than to rent so we have almost 75 percent of the persons buy homes buy apartments they don't rent they buy yeah so how about how big is the population how big is the population there uh 10 million how many 10 million 10 million okay very small country yeah small 2.5 million runners sounded like a business to me bro why why are these people if people would rather own than rent why are 2.5 million people renting great question great question good question get a good answer and you're probably going to make some good money okay great let me just ask you one more question okay um you always say to leave the luxury market outside um because we have an opportunity to we all the premium markets and luxury market are selling like crazy because even in the covid in the confinement the premium market is still growing we have buildings that are uh are made and uh three or three months later the buildings are not ready and they're already all sold out yeah what do you think about that by the they will not give you the guys we are we're in the hottest worldwide real estate super cycle maybe in the history of the world every country on planet earth printed cash whatever you call your cash there pounds cash pesos dude it's all garbage euros everybody knows it's garbage it's all it's completely made up we are moving into an era where digital currency will become a real thing and as things become fantasy more of a fantasy world the more people want to hold on to real things okay covid changed people's uh view of the world okay i don't want zoom calls i actually want to meet people we just did an event here in miami we sold that event out faster than any event i've ever sold out why because people that have been doing zoom calls now want to be together we offered a real estate summit 1400 people bought a ticket the first day i made this available so for you guys out there that have not confirmed your seat here at turnberry confirm your seat because this will be a sold out event you will not be able to get into this event because when you provide people when you tell people they can't do something the moment you say you can again they go crazy so so i'm just telling you like when money gets printed in the in the amounts and volumes that we have now that money is going to the rich people the rich people know how to get all the money and then what they're doing is they're converting their money to real assets and they're going to own the assets of planet earth and if you thought it was unfair before this you're going to really hate it a couple years from now when you miss this because what this gentleman is describing is rich people are buying up luxury properties once all that's gone what's left that garbage that the redneck from nicholas showed me from montana okay guess what happens to that stuff it gets converted to nice stuff and the cycle goes on so if you come through miami or you look at pictures of miami you go to madrid you're going to see all this old stuff in madrid man it's old and it's the most valuable stuff there is but there goes there's periods of times where it's not valuable until it is again so i would just tell everybody here look learn this game real estate you're going to pay to live in it why not be paid to own it and i've been playing this game for 35 years i learned something new every day in this game i learned something from the lenders i learned from from other investors i learned from uh stuff from brokers i learned stuff from builders and developers keep learning this game i invite you july 23rd what are the days johnny if you haven't confirmed your seat grantcardone.com forward slash summit grantcardone.com summit if you want to stay at home and watch it maybe you're in portugal you don't want to travel if you want to watch it from there make sure it's on your calendar make sure the dates are set make sure it's blocked out and if you're coming to miami if you want to be here meet my friends meet my investor friends meet other syndicators if you want to meet people talk to people if you want to raise money for your deal make sure you're in the room to meet these people and they become real to you 26 27 28th in miami florida okay a three-day summit we're almost sold out for it if you have people that you want to bring with you make sure you grab a seat for them it's going to be a great time you're going to meet great people i'm there the entire time i run the entire event i'm not turning this over to somebody say you do it this is me three days with me i'll answer your questions we'll look at your deals we'll underwrite them and and we're gonna have a great time thank you for watching god bless you guys peace love and cash flow use that real estate folks you

Channel: Grant Cardone

Views: 45,669

Keywords: grantcardone, grant cardone, 10x, money, finance, business, sales, motivation, yt:cc=on, WeAre10X, 10XNation, 10XStrong, 10XLife, 10XEverything

Id: PxTaekz6ouM

Length: 79min 20sec (4760 seconds)

Published: Mon Jun 28 2021