256: The Real Estate Numbers That Matter with Frank Gallinelli

Real estate math is simple: add, subtract, multiply, divide.

There’s no complex math like trigonometry, algebra or exponents.

Frank Gallinelli, Ivy League Professor of Real Estate Development at Columbia University in New York City, joins me to talk real estate numbers.

Net Operating Income (NOI) estimates current market value of a property.

NOI is rent minus VIMTUM. It does not include Principal and Interest.

Your Debt Coverage Ratio (DCR) had better be greater than 1. You typically need a minimum of 1.2 to 1.25 to qualify for a property.

Loan-To-Value ratio discussed.

Seller “asking price” is almost irrelevant. A property’s current market value is = Annual NOI / Cap Rate.

Cap Rate = Annual NOI / Property Price or Value.

Internal Rate Of Return (IRR) is more of a total return. Part of it is discounting your future cash flows. This considers your opportunity cost.

I give an example of buying a new $20,000 heating system for an apartment building. 

• This resulted in lower heating bills. 
• This increased cash flow (and NOI) by $4,800 annually. 
• Divide this by a 7% Cap Rate = $68,500 value increase.

Therefore, a $20K investment both improved cash flow and increased building value by $68,500.  

I dislike GRM – Gross Rent Multiplier.

Franks dislikes CCR – Cash-On-Cash Return. 

Return On Equity vs. Return From Equity.

Don’t get too lost in numbers. No property exists in a vacuum. The vibrancy of the market is more important than the property.

Get a 30% discount on Frank Gallinelli’s “Introduction To Real Estate Analysis” video course at learn.realdata.com with Discount Code: SAVE30

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