Your uncle passed away and left you $10 million with the stipulation that it be invested in real estate in the next 90 days. As word of your newfound wealth leaked into the real estate brokerage community, a line of brokers formed outside your door.

You should buy this office building said the first broker, Ira Our. At $20 million youll have to borrow money to buy it, but I know an Office Building REIT that wants to buy it for $21 million. The problem is that their Investment Committee doesnt meet until next week and the Seller needs a binding Letter of Intent this week. You can flip the building in 45 days to the Office Building REIT and, after all expenses, pocket a quick $500,000. It works out to a 32.5% Internal Rate of Return. How are you going to beat that?

As you escort Ira out of your office, you run into broker Captain Rate. I have a deal for you. It's an industrial property. You can buy it at an 8 cap. Comparable leased warehouses sell for 6.0 caps. The best news is that the tenant who occupies the whole building is vacating in July and you can do whatever you want with the building; itll be totally unencumbered by leases! It's an 8 cap, what a great deal.

Lastly, Al Appraise slides into your office. You gotta buy this apartment building Im selling. It's 4.5 cap, but you can leverage your investment at an interest rate of 3.5% and control a lot more property! Not only that, but at only $200,000/unit, its terrific. You couldnt build it for that. Comparable condos on the same block are for sale for $300,000/unit. You really shouldnt worry about Rent Control or TOPA regulations in this city, its not a problem. Al left your office with no further advice.

What are the practical and theoretical weaknesses in the investment/valuation methodologies of Ira Our, Cap Rate, and Al Appraise? What do you do next?