Cap rate for Newark, NJ?

[Travis Grossi]

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]

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