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A THREAD that will allow you to fit right in around real estate Twitter.
With terms, definitions and the basics of the lingo you need to know:
With terms, definitions and the basics of the lingo you need to know:
NOI = net operating income
This is the profit a real estate asset makes BEFORE you consider the debt service payments.
We use this term as the ALMIGHTY measure because each investor may get different debt terms and thus debt payments.
This is the profit a real estate asset makes BEFORE you consider the debt service payments.
We use this term as the ALMIGHTY measure because each investor may get different debt terms and thus debt payments.
Cap rate = NOI / Value
Divide the net operating income by the value of an asset (or what somebody paid for it) and you get a %.
That % is a cap rate. 7 cap means 7%.
If you pay $1MM for an asset at a 7 cap that asset generates 70k of NOI
Divide the net operating income by the value of an asset (or what somebody paid for it) and you get a %.
That % is a cap rate. 7 cap means 7%.
If you pay $1MM for an asset at a 7 cap that asset generates 70k of NOI
GP = General partner = sponsor = syndicator
These all mean the same thing:
The person who puts together the real estate deal. The person who oversees the deal. They found the deal. They model out the deal and get financing for the deal.
These all mean the same thing:
The person who puts together the real estate deal. The person who oversees the deal. They found the deal. They model out the deal and get financing for the deal.
LP = limited partner = passive investor
These people are the folks who put in the money for the GPs to use to buy real estate.
They don't have an active role. They write checks and GPs own part of the deals the GPs put together.
These people are the folks who put in the money for the GPs to use to buy real estate.
They don't have an active role. They write checks and GPs own part of the deals the GPs put together.
Pref = preferred return
This is the return LPs get first. They get paid this return before the GP gets paid any money.
An 8 pref means the LP is entitled to an 8% annual yield on their money before the GP gets paid.
This is the return LPs get first. They get paid this return before the GP gets paid any money.
An 8 pref means the LP is entitled to an 8% annual yield on their money before the GP gets paid.
Promote = carry = the amount of cash above the preferred return a GP is entitled to.
Ranges from 20-50%. This is what the GP works for on the deal.
If a deal makes 15% on a 8 pref 50% promote structure the GP gets 50% of every bit of cashflow beyond 8%.
Ranges from 20-50%. This is what the GP works for on the deal.
If a deal makes 15% on a 8 pref 50% promote structure the GP gets 50% of every bit of cashflow beyond 8%.
Un-levered yield.
This is a % return on a deal if it didn't have debt on it. It is the same as cap rate.
This is a % return on a deal if it didn't have debt on it. It is the same as cap rate.
Debt service.
This is a term for principal and interest payments on a loan.
Most commercial real estate has a loan on it at a certain interest rate. The monthly payment is the debt service.
This is a term for principal and interest payments on a loan.
Most commercial real estate has a loan on it at a certain interest rate. The monthly payment is the debt service.
Cash on Cash = CoC
This is a return, as a %, on the cash you invest.
It takes into account debt service payments.
A 10% CoC would mean if you invest $100k and you get an annual return of $10k after you pay your debt service.
This is a return, as a %, on the cash you invest.
It takes into account debt service payments.
A 10% CoC would mean if you invest $100k and you get an annual return of $10k after you pay your debt service.
Lease up.
This is the time period it takes to get tenants to rent your space.
"Lease up" on a new storage facility can be 3 years. That means it takes 3 years to lease all of the units and "stabilize" the asset.
This is the time period it takes to get tenants to rent your space.
"Lease up" on a new storage facility can be 3 years. That means it takes 3 years to lease all of the units and "stabilize" the asset.
Underwriting.
This means to figure out what a deal is worth to you. It involves projecting the cashflow and yield and lease up periods and deciding what you are willing to pay.
This means to figure out what a deal is worth to you. It involves projecting the cashflow and yield and lease up periods and deciding what you are willing to pay.
Proforma.
This is the excel model that predicts cashflow on a monthly basis.
What do we think is going to happen? Look at the proforma.
This is the excel model that predicts cashflow on a monthly basis.
What do we think is going to happen? Look at the proforma.
Speculation.
This means to make a bet on something that is outside of your control.
Speculators are buying assets that don't necessarily make money but will hopefully be worth more later.
This means to make a bet on something that is outside of your control.
Speculators are buying assets that don't necessarily make money but will hopefully be worth more later.
Operate = manage
This is the act of running the business of a particular real estate asset. Leasing, marketing, vetting, collecting rent.
Third party companies do this and some GPs do this.
Self manage means you do it yourself. Generally a fee is charged.
This is the act of running the business of a particular real estate asset. Leasing, marketing, vetting, collecting rent.
Third party companies do this and some GPs do this.
Self manage means you do it yourself. Generally a fee is charged.
ReFi = refinance
This means you go to a bank after you have owned an asset for a while and get new loans put on it.
Sometimes these exceed the value of the previous loans and there is left over cash. This is called a cash-out-refi.
This means you go to a bank after you have owned an asset for a while and get new loans put on it.
Sometimes these exceed the value of the previous loans and there is left over cash. This is called a cash-out-refi.
Asset class.
This refers to a type of asset.
Industrial is one.
Self storage is one.
Multifamily is one.
There are a lot of these.
This refers to a type of asset.
Industrial is one.
Self storage is one.
Multifamily is one.
There are a lot of these.
DSCR = Debt service coverage ratio
Its the relation to NOI to the total debt service obligation with principle and interest.
NOI= $70k DS = $35k
DSCR = 2
Most banks have a 1.25 DSCR minimum stress test as a way to assess risk.
Its the relation to NOI to the total debt service obligation with principle and interest.
NOI= $70k DS = $35k
DSCR = 2
Most banks have a 1.25 DSCR minimum stress test as a way to assess risk.
I have a few free mini-courses around some key concepts of real estate:
NOI / Cap Rates:
https://nickhuber.podia.com/noicap
Debt, Cashflow and Risk:
https://nickhuber.podia.com/debtcashflow
NOI / Cap Rates:
https://nickhuber.podia.com/noicap
Debt, Cashflow and Risk:
https://nickhuber.podia.com/debtcashflow
And who am I?
I own and operate a real estate private equity company called Bolt Storage.
We own 20 self storage facilities, 536k square feet, and 4,154 units.
We acquire, syndicate and operate them all!
I own and operate a real estate private equity company called Bolt Storage.
We own 20 self storage facilities, 536k square feet, and 4,154 units.
We acquire, syndicate and operate them all!
Some folks you should follow if you want to learn more about real estate:
@moseskagan - LA multi
@fortworthchris - TX industrial
@Keith_Wasserman - Multi everywhere
@scottyo21 - AZ multi
@bobbyfijan - Philly development
@MattLasky - midwest medical
@RohunJauhar, @BarryRoland19
@moseskagan - LA multi
@fortworthchris - TX industrial
@Keith_Wasserman - Multi everywhere
@scottyo21 - AZ multi
@bobbyfijan - Philly development
@MattLasky - midwest medical
@RohunJauhar, @BarryRoland19
