BiggerPockets

Im looking at a beautiful 148 commercial apartment building. 21 million. Can someone give me the best way to get the cap rate, Im struggling with this one. :roll: Want to see if its going to be a good investment.

Okay this is a lot to ask for considering you also want to know the proforma cap rate as well. But we are not going to be able to do that with all the details of the commercial property itself. We need to know what each unit consits of (ex: 1bd/1ba/700sqft) and what competitive rents are going for. And remember just because units have the same bed, bath and square footage does not mean it is a solid comparable. Also you will need to determine the vacancy ration of the building itself and if there are lease agreements find out the terms of each lease. And last but not least you have to determine your LTV for most commercial lenders will require that you put 30% down.

Lets see 148 units; we will say that they are all 2bd 1ba with 800sqft of living space and all units are going for $2250.00 a month. And lets say that you have all 148 units leased out for the next three years. That will come to a grand total of $333,000 a month minus you expenses of maintaing the building itself. Your payments on the loan itself will be roughly $185,122.48 with a 30% down payment, which will leave you with $147,877.52.

You will also have to consider the utilities that have to be paid on the building and your CAM charges as well. So this is why it is vey hard to determine what the cap rate will be as far as what you gave us.

Please come back with some more details and we will see what we can do to try and help you out, thank you for your time my friend!

This is very true Jon but if it were me investing this much money of mine I would make it a great goal of mine to find out any and all details that I could. I know I did get in to much detail but the fact of the matter is that numbers do not lie and if everything is obtainable then why not ask for it and run the numbers?

Josh,

The links to the blogs are great which explain the definition, calculation method, and reasoning for their use, however, they are general in nature.
Wendy did not provide figures in order to properly calculate this particular investment and I am quite worried about her even thinking of investing in such a large building if she has no idea about cap rates. That could be a financially fatal mistake.

In addition, the 50% rule that I keep seeing on this forum is for a quick scan evaluation of properties and not to be used to calculate true cap rates, dscr, operating expenses, NOI, ROI, or any other pertinent figures, particularly with a complex this size.

Wendy, my advice is to get some professional help evaluating this investment such as a very experienced investor, CPA, and/or RE attorney. There are many determining factors you need to calculate in order to arrive at the asking price's true cap rate and what cap rate it is currently worth.

Wendy, send the exact figures to me including taxes, insurance, management, utilities, administration/professioanl fees, makeready expense, trash, landscaping, and all other operating expenses and I will calculate the value for you as well as the asking cap rate, dscr, and price at which I would offer.

Hope this was helpful