I have been searching for a duplex for about six months now. I have seen many properties that have a cap rate of 10-15%, problem is they are in pretty sketchy neighborhoods. For a better neighborhood it seems as if the initial investment is usually double and the return never that much higher. For instance a 60,000 dollar duplex rents out for about 400 a unit in a sketchy neighborhood versus a 140,000 dollar duplex renting out for 600 a unit in a nicer neighborhood. The cap rate has almost been split in half. Would you rather go for the nicer neighborhood with less cash flow? To me when buying in a nicer area I just can't seem to make the numbers work. Thoughts on this?
Are you trying to invest in your backyard? That's my problem in California, returns are poor. My solution was out of state investing.
You don't understand what a cap rate is or what a return is. If an investor is only willing to buy a NOI at 15% it is because there is a greater risk of getting a return. California investments generally trade at better cap rates, 5-7% because the expectation is that it will preform more profitability.
@Mike Williams Welcome to Bigger Pockets!
Purchase prices and rent rates obviously vary widely around the country. You generally see better monthly rent rates to purchase prices in worse neighborhoods. Many aggressive investors are looking for 2% or more on monthly rent to purchase price. So if they bought it for $50,000, they would want it to rent for $1000 per month. Unfortunately, you often find this in "rough" areas with no likelihood of appreciation and more headaches with tenants.
It sounds like you're looking for a nice middle ground and you might need to go outside of your area to find it. I've often heard, "Live where you want to live, but invest where the numbers make sense."
Bigger pockets has a wealth of free resources on the forums and podcasts. So make the most of that. You might also need to meet up with some investors in your area to get their perspective and get a better idea of what you can find locally and what you can not.
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