This is the first episode in what I’m calling my “Investment Series”. I’ll be discussing Multifamily Real Estate Investments using a deal I was involved in (now closed) as a case study. I’ll be explaining the structure of that deal and how it impacted the numbers and their optics. Today I hope to provide some education to listeners with no or limited real estate investment experience and for those of you who are old pros, a high-level look at a deal that I found particularly interesting.
This episode may be a bit acronym-heavy for some of the novice investors, so I have included a few references here as well as a companion pdf. We’ll be mentioning such concepts as: capital expenditures (CapEx); net operating income (NOI); return on investment (ROI); and earnings before interest, taxes, and amortization (EBITA). We’ll also discuss the risk associated with a property (Cap Rate), how to calculate profit and loss (PnL), and the internal rate of return (IRR). I’ll be using these terms and concepts to explain the real estate deal which featured a debt refinancing loan as part of it’s business plan.
In this episode, we’ll cover:
- How to find your NOI by figuring out your net income and operating expenses and their associated calculations.
- Finding the value of a property by taking the NOI and dividing it by the Cap Rate and why the value of the property is calculated separately from the debt service on it.
- Free cash flow or the profit on the investment after all debts are paid and Preferred Returns for investors.
- Debt refinancing loans as a method of quickly generating a high IRR and rising cash-on-cash returns.
- Looking at the full details of a deal to understand the rates of return, rather than just going by the basic percentages and numbers provided