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Many Eurozone leaders have hoped that they can rescue Greece’s imminent bankruptcy through more debt, fiscal austerity, privatization and reform and postpone the inevitable until 2013, when the European Stability Mechanism (ESM) should provide an orderly planned state insolvency.

UBS AG, which operates in more than 40 countries and considered as the world’s second largest manager of private wealth assets, with over CHF 2.2 trillion in invested assets, thinks otherwise. The company believes a default will be triggered before the end of the year. “The ‘voluntary’ debt restructuring agreed on over the summer is already likely to saddle Greece with a selective default rating,” said UBS Research Focus in October 2011, “and we would go so far as to say that the country can no longer escape a full default.” Continue reading ‘Has the Greek Tragedy Started?’ »

One of the most misunderstood, but important, terms in real estate investing is the Capitalization Rate or cap rate for short. This key metric is at the heart of all income property investments and allows investors to compare multiple properties to one another by taking into account their expense load. Unlike the GRM which only accounts for a property’s Purchase Price and Gross Scheduled Income (GSI), the CAP Rate also accounts for a property’s expenses, with consideration for operational efficiencies or mismanagement as the case may be.

CAP Rates are basically the savings rate or yield of a real estate investment in which you pay all cash. For example, a 10% CAP property would yield a 10% cash-on-cash return if you purchased it with cash and no debt. You calculate a property’s CAP rate by simply dividing the Purchase Price by the Net Operating Income (NOI).

When calculating a CAP rate, it’s important to properly account for expenses. Since your NOI is calculated by subtracting your expenses from your GSI, understating expenses will overstate your NOI and thus your CAP rate, making the investment appear better than it truly is. The key is to make sure that you verify as many actual expenses as possible (taxes, utilities, management, etc.) and predict others as realistically as possible (maintenance, reserves, etc.). Your goal should be to arrive at a realistic CAP rate for the investment during your Due Diligence period so you can determine whether or not to move forward with the purchase.

Continue reading ‘Real Estate Investment Training – Understanding CAP Rates’ »