Reasonable cap rate in Austin, TX

[Bruce Myers]

We are looking at a small multi in Austin, TX (centrally located), and the cap rate based on the asking price seems ridiculous (basically, the place seems overpriced by a factor of 2 based on what I think a reasonable return should be). I know that the Austin market is hot, so there is some speculation involved in the valuation. That said, what is a reasonable cap rate for a small multi (6 units) in a very desirable location? Because I don't have any of the detailed numbers yet, I'm using the 50% rule to estimate NOI (basically taking 50% of reported gross rents as NOI and dividing by asking price for cap rate) and I'm getting something like 4%. Does that seem crazy to anyone else, or am I doing something wrong?

FYI, just so I don't appear too crazy to even be considering this, we have plans for this place that will increase the actual income by at least double, but I still don't want to overpay based on the market.