Real Estate Miscellaneous

Question 1

What is Net Operating Income (NOI)?

Answer 1

Gross rents minus operating expenses such as property management, taxes, maintenance, wear/tear (cap-ex), vacancy at 5%, and insurance.

Question 2

Given a gross rent of 1000 and operating expenses of 350, what is the NOI and Net Income if the debt is 150 for principle/interest?

Answer 2

NOI is 650 per month and Net Income is 400 per month.

Question 3

What is Cap Rate and how is it calculated?

Answer 3

It is the ratio of Annual NOI to the purchase price plus costs. For example, if the annual NOI is 10,000 and the total costs are 100,000, the Cap Rate is 10%.

Question 4

What does a lower market cap indicate?

Answer 4

It indicates higher NOI and lower expenses. The multiplier depends on the market you’re in and the quality of the property.

Question 5

How is DSCR (Debt Service Coverage Ratio) calculated?

Answer 5

DSCR = Net Operating Income / Annual Debt Service. It should ideally be greater than 1.2 percent.

Question 6

How do you calculate the Max purchase price for flips or BRRR strategy?

Answer 6

MPP = ARV x 70% - Rehab, where ARV is the After Repair Value.

Question 7

What is the Actual COC (cash on cash) for flips and how is it calculated?

Answer 7

It’s the ratio of the annual income to the initial investment. For example, if you want a 10,000 profit on 100,000 costs, and you have an income of 100 per month, the COC return is 12%.

Question 8

How is the COC used for project return for flips?

Answer 8

The goal is at least 10%. For instance, if you want a 10,000 profit on a 100,000 investment, the COC return should be 12%.

Question 9

What are the important data points to check on Redfin for market analysis?

Answer 9

Time on market, list price to sale price percentage, inventory trends, buying down loan rate, and seller concessions. Refer to https://redfin.com/news/data-center and https://www.redfin.com/us-housing-market for more details.

Question 10

When analyzing time on market, what does a longer duration indicate?

Answer 10

A longer time on market is better as it may lead to more concessions and a lower sale price.

Question 11

How should you value any property?

Answer 11

Compare with the closest property within a 1/4 mile, with a size difference of +/- 200 sq ft. They should be of the same type, construction style, build generation (+/- 5 years), and have sold within the last 6 months.

Question 12

What are the basic values to add or subtract for properties under 500K?

Answer 12

Bedroom: 10k, Bathroom: 10k, Pool: 10k, Carport: 5k, Garage: 10k.

Question 13

What are the basic values to add or subtract for properties over 500K?

Answer 13

Bedroom: 20k, Bathroom: 10k, Pool: 20k, Garage: 20k, Carport: 10k.

Question 14

How do property surroundings affect its value?

Answer 14

Siding/Backing high-density traffic: -10k, Fronting: -10k.

Question 15

How is the ADU/basement square footage valued?

Answer 15

It’s not fully counted, but many get 50% of its value.

Question 16

What are some general purchasing tips to consider?

Answer 16

Never buy on a busy street, without a reserve fund, sight unseen, without a home inspection, or the nicest house in the neighborhood.

Question 17

What is the first step when considering building an ADU?

Answer 17

Call or visit the zoning office.

Question 18

What should you check regarding parking when considering an ADU?

Answer 18

Check if additional parking is required.

Question 19

What type of zoning is preferable for ADUs and why?

Answer 19

Look for single-family zoning that allows ADU because multifamily zoning has much higher regulations/standards.

Question 20

Which is more cost-effective: attached or detached ADU?

Answer 20

Attached ADU is cheaper than detached. Attached costs around 100/sq, while detached is approximately 225/sq.

Question 21

How can you create an ADU from a master bedroom?

Answer 21

You can build off the master bedroom if it has a separate bathroom, adding a hallway to the ADU.

Question 22

What are some financing options for ADUs?

Answer 22

Home renovation loans, cash, private money, or borrowing from a 401k.

Question 23

What size homes are suitable for ADU conversion?

Answer 23

Homes that are 3bed/2bath and >2000 sq or homes that are 2bed/2bath and 1500-2000 sq.

Question 24

What factors should be considered for ADU conversion?

Answer 24

Proximity of a bathroom to the extra room, possibility to add a kitchen or another wall, and the feasibility of adding an external/another entrance.

Question 25

What should you consider for a garage conversion to ADU?

Answer 25

Check if water/sewer/power line is on the same side as the garage, the size of the garage, the shared wall’s location, and the need for soundproofing or a vapor barrier.

Question 26

What is the SB9 law related to ADUs?

Answer 26

The recent SB9 law makes it illegal for a city/municipality to not allow an ADU.

Question 27

What should you research further for ADU and zoning laws?

Answer 27

Learn about ADU codes in LA county, differences between attached vs. detached ADUs, primary residence requirements, and parking standards from zoning laws for garage conversions.