Comments on: Capitalization Rate–A Not Quite as Quick but a Little More Accurate Comparison of REI

By: Mike

Mike — Fri, 16 Nov 2007 11:46:47 +0000

Thanks, Mr. Cheap. It’s hard to say how well the 45% expense “rule of thumb” holds up over time without holding a property for several years. I suspect it’s a bit high for our single-family homes, even over a 5 year period or so. On the rehab costs, I’m always right on the money. That’s because I set the budget, than make Rob pay for the overage.

By: Mr. Cheap

Mr. Cheap — Thu, 15 Nov 2007 21:43:19 +0000

Great post! I’m sad that you debunked the 45% expense ratio (“but its *SO* easy to calculate, and so reassuring!!!”) As Carl Sagan says “It is far better to grasp the universe as it really is than to persist in delusion, however satisfying and reassuring.”

Accurately calculating the NOI and rehab costs are about the most valuable skill I think a real estate investor can develop…