Cap rate for Newark, NJ?

Question

Hi all -

Operating under the assumption there's no dumb questions (right? right.), I am in the process of trying BP's rental calculator for the first time and was wondering where I can find the typical cap rate for Newark, NJ? Any help would be appreciated!

Thanks,

Travis

Steve Wilcox · Answer

For us cap rate is not as big of a factor in our purchase as we are buying distressed based on future cap.

Different areas of Newark have very different cap rates, a new construction house in iron bound will have a very different valuation than an old building in the south ward.

We are also finding that commercial buildings (actual apartment complexes) are offered at dramatically lower cap rates than 2-4 family buildings.

I don't own anything in iron bound or downtown because the returns are too small.

In most of the rest of newark we are seeing an actual cap rate of about 13-15% on our purchase plus renovations, and about a 8-9% cap rate based on ARV and neighborhood. In Ironbound and downtown we are seeing things trade at closer to 6-7% cap rate.

Cap rate is somewhat less important when you are looking at 2-4 family buildings as appraisers are going to look at comps not cap rate when assessing value. We like to see a certain amount of gross and net cashflow from a building to meet or acquisition criteria for newark, I look for over $2500 in gross rent, and average of $300 per door on paper when taking out all expenses, maintenance, management, ect

Lafontant Cherilus · Answer

Hi Steve,  Do you also invest in Irvington?  What about Orange / East Orange?

Steve Wilcox · Answer

If you are looking in ironbound or downtown that is probably about right. IN areas where most of the units are owner occupied, metrics like cap rate are irreverent and you will not hit the same returns we do in tougher areas.

Owner occupants generally dont care about cap rate, NOI, ect because they are not buying for investment they are only interested in a nice place to live in their chosen neighborhoods.

Also deals are almost never listed at current good deals, you will need to make offers and negotiate people down to your number more often than not. I generally look at 20 properties, make offers on 10, and might get 1 deal

Travis Grossi · Answer

Thanks @Steve Wilcox for the detailed response! The deal I was looking at only had a cap rate of 5% and didn't hit the $300/door mark, so we'll keep looking. Thanks again for all your help!

Ibrahim Hughes · Answer

@Steve Wilcox may also know. He's a buy and hold Investor in Newark.

Darren Sager · Answer

I guess it depends upon the area of Newark.  The Iron Bound section will be lower than other areas because it has more appeal.  What are you trying to achieve?

Travis Grossi · Answer

Thanks Keith! What's a good cap rate? What should I be aiming for?

Cap rate for Newark, NJ?

Most Popular Reply