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Quick Tips
Capitalization Rate "Cap Rate"
05/11/10
The first step in investing is defining your personal criteria. Understanding CAP RATE is critical in determining which deals fit within your criteria.
Click to see Wayne explain the concept of "Cap Rate" in his video blog
Definition:
Cap Rate is the ratio between your Net Operating Income (NOI) and value of the investment
Example:
NOI = $30,000
| CAP RATE (%) | Value of Investment |
| 6% 7% 8% 9% 10% |
$500,000 $428,571 $375,000 $333,333 $300,000 |
Formula:
CAP RATE(%) = NOI / Value of Investment
CLICK HERE to view and download an APOD Form
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"Measuring Cash on Cash (COC)"
05/11/10
Becoming familiar with the language of investors is the first step to becoming a successful investor. The most important term in investing is Return on Investment (ROI). Understanding how to measure and project ROI is key to evaluating deals and meauring risk vs. reward. Cash on Cash is a basic principle used to measure the amount of money returned by an investment in the first year, compared to the amount of money needed to acquire the investmetnt, expressed in percentage (%).
Click to see Wayne explain the concept of "Cash on Cash" in his video blog
Definition: Total amount of cash returned to the investor in the 1st year, divided by, the total cash needed to aquire the investment.
Example: If your investment is 100K and in the first year your return is 50K then your COC is 50%.
Formula:
| $100,000 (total invested) |
| $50,000 (cash returned in 1st year) |
| 50% (COC) |
Measuring Cash on Cash (COC), Internal Rate of Return (IRR), Cap Rate, and Return on Equity (ROE) are basic funtimentals that investors use to define their criteria, evaluate risk, and make educated decisions about their investments. I encourage you to start by understanding these terms, how to measure them, and how to use them to evaluate the risk and ROI of potential investments.
Enroll in Wayne's Psychology of Investing Course starting on May 17, 2010 to learn more about COC, IRR, Cap Rate, ROE, and many more valuable lessons to improve your financial IQ.
* This is a 30-hour TREC approved core course that will count toward your pre-licencing or first year SAE renewal hours
CLICK HERE for details regarding this course
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"Paradox"
04/30/10
When it comes to investing what seems easy is really hard and what seems hard is really easy. Understanding this paradox and realizing that learning the principles of business and investing for yourself, instead of putting all your trust in financial advisers, will lead to easier decisions in the future and a more prosperous life.
Click to see Wayne explain the concept of "Paradox" in his video blog
When it comes to money and investing it is EASY to let an adviser handle your finances. However, when times get tough and the money starts to disappear then it gets very HARD to know what decisions to make, especially when you don't know who to trust. My advice for you is to take the HARD road now and make things EASY for you in the future. Get a book, take a class, educate yourself about the basic principles of investing and take an active role in controlling your savings and retirement funds.
You can't manage what you don’t measure... so learn what to measure, how to measure it, and how to make the best decisions for your future.
~ Wayne Morgan
The Austin Institute offers a class, taught by Wayne Morgan, which will show you the basic and advanced fundamentals of investing techniques. Click Here to learn more...
