I am looking for a multifamily listing closer to a 10% cap rate. Am I being unreasonable in my hopes to find something in this range between Tacoma and Marysville?
Definitely going to be a challenge in Washington State. Anything even remotely close to that and you will have a lot of competition. Unless you find something off market.
@Andrew Ralston I’m reminded of the meme that said, “We did have one house in your price range. Unfortunately we sold it in 1969”. But seriously, don’t get hung up on cap rates! They are merely of an indication of what the market is willing to pay for a particular asset, in x condition, and x location at this moment in history… subject to change without notice!
It is only one indicator among many (better ones) to consider. It does not tell you if the property is a good deal - and very well may be a worse deal because of a high cap rate! High cap rates tend to indicate less desirable, more run down properties. More risk, higher rate.
I like to find properties that i can improve through upgrades, better management, and market rents. My last one was barely a 5 cap that basically broke even on day 1. Within 60 days I was at 6.25% cash on cash, and after 1 year I was at almost 20% (I then refinanced my cash out of the investment at twice the purchase value!). If I had said No due to a low cap rate I would have missed out on a great opportunity.
I agree with @Curtis Bidwell .
I wouldn't give too much weight to an entry cap rate. When running the numbers if the IRR, and cash-on-cash, and local growth rates all look good, don't let the cap rate deter you. Keep in mind that with a 10 cap you may be taking on some unnecessary risk too.
@Andrew Ralston , it is not easy to find 10% cap rate and in decent condition. Most probably you will need to start with a property that needs some value add or renovations. Numbers will be better after it stabilizes.
@Danielle Jackson , do you happen to have some formulas for the IRR, and cash-on-cash that I would be able to use? If not, can you point me in the right direction? I am having a hard time finding one I can use excel.
Absolutely! Just sent you a connection request.