Where's the cap rate map? Is there one?If not we need one of these!! How do you know what the cap rate is in an area your looking to buy?? Please share

5 Replies

So, I get asked quite frequently "What's the cap rates like in this area?" when I am selling a property for a rental, usually out of state. The only answer I can give is whatever an agent or broker tells me it is for the area, which should be consistent it varies. 

I am looking to buy a piece of property where I live. I have already owned rentals in my town for 11yrs but most brokers/agents have no Idea what the cap rates actually are in this area so what should I do?

1) Rather than rely solely on a guestimated opinion, which is what I feel I get, how can I best determine an areas cap rate myself whether its an in town deal or out of town deal?

2) What is your system to determine an area's cap rates? What resources do you use and why?

Thanks in advance :)

Maybe @Brandon Turner will help me be the creator of such map if there isn't one?...lol

The Cap Rate is 9.

@Bob Bowling Please elaborate on your response. Doesn't clearly answer any of my questions above b/c I am looking for detailed information.

Thanks

Originally posted by @Jared K. :

So, I get asked quite frequently "What's the cap rates like in this area?" when I am selling a property for a rental, usually out of state. The only answer I can give is whatever an agent or broker tells me it is for the area, which should be consistent it varies. 

I am looking to buy a piece of property where I live. I have already owned rentals in my town for 11yrs but most brokers/agents have no Idea what the cap rates actually are in this area so what should I do?

1) Rather than rely solely on a guestimated opinion, which is what I feel I get, how can I best determine an areas cap rate myself whether its an in town deal or out of town deal?

2) What is your system to determine an area's cap rates? What resources do you use and why?

Thanks in advance :)

 Jared you'll need to know a range of cap rates for your specific:

-structure age and condition

-tenant base or type of renter

You go get comps of most recently sold multi family buildings in your range of units 25-35 units.

You look at the NOI / Sales Price = cap rate

So first you have to understand what a cap rate is 

what is a NOI is and how to calculate it

How you can manipulate NOI or CAP rate to make a seemingly good deal as a bad deal

You have to know the difference between a bad deal or a good deal otherwise you might be setting yourself up for some hard times.

Most agents have no clue (in depth) about what cap rates really other than its a formula of NOI / sales price = them selling a property to you to make a commission and its a number you as an investor look for.

To determine which cap rates you're willing to invest in you'll have to know how the "cap rate," and this subject property will affect your financial statements otherwise you have no way to plan and you're purely "winging it."

Cash flow statement - how much cash flow are you estimated to make per month net net at the end the day on the "buy," and then how much later after you've done your  improvements as well. This will tell you what your cash on cash returns will be on the buy, and post improvements.

Balance Sheet - how much is the asset valued at now and where it could be  and what liabilities/debt are going to be taken against the asset (net between these is your potential equity)

@Albert Bui  Thank you so much! Awesome explanation, great detail! I should be able to get the information and go from there if I can get the incomes from previous sales in my area, may be tough. 

Your exactly right, brokers use any simple # system they can to sell but sadly it's just because that's all they have been taught. A sharp agent/broker is tough to come by are would be worth their weight in gold. I am sure there are many out there, just not so many here, and I am willing to bet they do really well with repeat investor buyers.

I will definitely put this to use!

Thanks again!  

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