If it is an interest only situation you would just take the stated interest rate and multiply it by your debt position within the “band of Investments” equation instead of the MC for that part of the equation.
That’s the first I’ve heard of that. Would you use the interest rate or the APR? Perhaps they are one in the same?
The APR is inclusive of points as well as the periodic money costs. You could use the APR as well as the stated. You could also use the compounded yearly rate for the interest only. It just depends how accurate you need to be. But for a quick analysis the stated interest rate is fine because you will be within a few basis points (excluding points). You can’t use the mortgage constant for an interest only mortgage because it includes equity build through amortization. It just depends on your needs.
Thanks Sean, that’s good to know.
Sean or Danny,
I only follow about half of what you guys are saying, Do you need to go to four years of college to learn that, or are there tools that I can get to teach me to understand? I don’t even know alot of the terms that you are using in your explanations. I need something that I can sit down with and grind my way through so that I can understand the concepts from the bottom up.
Thanks,
DB
Here is a short plain language explanation that focuses on the method(and limitations) of Band of Investment
I would buy this book:
Real Estate Valuation: Principals and Applications
By: Kenneth M. Lusht
ISBN 0-9712226-0-6
DB,
Books are great, buy a bunch. To really learn the concepts it might help to take a few appraiser continuing ed. courses. A lot of income capitalization will seem very foreign to you otherwise. I’d recommend the same if you decided you wanted to learn Tagalog or Mandarin Chinese. Don’t show up to a room full of Certified General appraisers and MAI’s without ATLEAST knowing the basics like the back of your hand. Once you get done Sean’s recommendation, I would recommend a book called “Fundamentals of Real Estate Appraisal” by Ventolo and Williams. Both of these books will be a good primer before you attempt to learn the more advanced capitalization theories.
Thanks guys, I got the feeling that will keep my busy for a little while. :o
DB
Mike,
gross rents @ 5450
divided by .02
=272,500
Would you say this is market value or do you still go by comps. I am thinking if this is a income property you would use this as a good tool for determining value. thanks mike
No, I am not saying that is market value. That is a screening tool that I use to get one indication of the maximum purchase price of the property.
Mike
mike,
wouldn’t your offer of 202,449 need to be lower to make this work . since you said you do 100% financing which i assume is also c.c. rolled into the l oan. so if the closing costs are 12000 wouldnt you need to offer 190,449. just rying to understand everything. thanks
Johnny,
I agree. You would need to consider the closing costs.
Mike