Expectations for Financial Measures and Investment Returns in MFR

2 Replies


While we have been owners of commercial real estate for 7-8 years, we are now looking at expanding our horizons and seeking to buy and hold smaller multi-family units (2-5). An excerpt from our (in progress) business plan is included below:

We anticipate acquiring additional rental properties in the metro Charlotte, NC area. We will focus on small multifamily properties, seeking the following parameters:
  • 20% cash down
  • Capitalization Rate of 8-10%
  • Cash on Cash Return of 11%
  • Total Return on Investment of 15%
    We plan to hold the properties 8-10 years.

    I have been unsuccessful in finding any real good solid guidance on expectations/goals for the above parameters and also IRR rates. From what I have read, if we can get these parameters to be better than historical stock market returns, then we would be coming out ahead from an investment standpoint, thus the parameters that we established above.

    From my limited searches on Realtor.com thus far, there are a few properties that could meet the defined criteria above, but have found that the Cap Rate is probably the hardest one to hit. If all the other parameters are met, does a lower Cap Rate affect my overall investment performance?

    Are there any additional parameters that I should include in screening properties, and if so, what rates should I seek?

    Your Cap Rate is directly related to your cash on cash ROI. If you can't get find properties with a Cap rate of 10% in Charlotte, then go to another market. In CA a cap of 10% would be wonderful, but in Cleveland, it would suck. The Cap rate is just one factor to consider. The other is the actual Net Income. The Net Income in CA is going to greater than the Net Income for a property in Cleveland all things being equal. The ROI is the best parameter to use in my opinion. Our minimum cash on cash ROI for the first year must be at least 10% for us to consider the investment. There are too many other ways to earn at least 10% ROI on a buy and hold investment.

    God Bless You!

    10% (or close to)  for Larger buildings in Cleveland (6+) would be a good rate. There are not many trading much higher.

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