What CAP rate do you seek? What do you call a "deal"?

Question

Historically, I won't consider anything in NJ below a 10% CAP which is becoming next to impossible given the taxes. I've considered lowering expectations a bit or working with a wholesaler, but finding a good one is proving as elusive as finding a 10% CAP. My next move is to start looking next door at PA, but the tend to yield lower rents so most of what I've found is a wash. I'd like to hear from folks that search out multi-family investments and what their criteria is for a "deal". Especially if you buy properties in NJ.

David Faulkner · Answer

Depends on your strategy ... if you are looking for short term cash flow, then a high CAP rate is your friend. If you are looking for short term forced appreciation, then a low CAP rate is your friend. Long term cash flow and appreciation, time will tell, but I'd argue that a low CAP rate is likely your friend here too, so long as you can maintain positive cash flow and forced appreciation equity position in the short term to make sure you make it to the long term. I understand that this is a different operating philosophy from most on this site, but if you want to know how to make money in a lower CAP rate environment, then keep an open mind and ask a Californian, or a Hawaiian, or a New Yorker (city). We aren't all crazy speculators, I promise.

Ned Carey · Answer

Well for what type of property and what class of property are you referring to? An A class property at 9% is a steal. A D class property at 10% may not be a very good deal many places.

I don't agree with him on many Issues but @Bob Bowling will certainly give you a different perspective on this question.

Also cap rate is only one criteria. Do you anticipate population or economic growth? What kind of terns can you get and what would your Debt Service Coverage Ratio be? Is there an opportunity to re-position the property?

Melissa Gittens · Answer

@Michael Noto okay I will call you to chat offline. Thanks!

Michael Noto · Answer

@Melissa Gittens Loaded question that would probably take me an hour to respond to typing and 5 minutes to respond to verbally.

Melissa Gittens · Answer

@Michael Noto what areas in Northern Connecticut would you consider to be C+ to B+ areas, and D areas as well. I am fairly new to the area and am trying to stay away from those D areas ( New Britain/Hartford in my opinion are D areas, but I could be wrong.)

Michael Noto · Answer

The answer to this question for me all depends on the class of property you are talking about.  There is no cap rate that can make me deal with a D class property.

Solid deals in C+ to B+ areas here in Connecticut (where the taxes are also high) seem to be where the best balance is in terms of having a chance at achieving a cap rate that makes the purchase worth it in terms of monthly cash flow.

Michael Lee · Answer

Hello and welcome to BP!  I have not been an investor yet but I have listening a bunch.  You just might have to look at more deals and make more offers to get better results. Branodon expects between 10 and 12 percent as a good return.  I have a bunch of construction experience and a little real estate experience.  I am now 59 years old and I found BP about 6 months ago and I am still trying to decide what to do.  Whatever you decide what to inest in just know the market and pick good locations.  Always do the numbers and make sure all numbers given to you are real.  Try to explain to the seller why you are lower than the selling price and make sure they understand.

I have a college degree in business that emphasized real estate.  That same year that I graduated, in 1980, I got a broker license and I did not have to take anymore classes.  I held that license for about 30 years and I had to take a current class every two years.  My father has been in the real estate business for about 35 years and he taught me a little bit.  If you think I might be able to help you out please contact me through BP at any time.  Good luck!

Russell Brazil · Answer

As I shift more towards buying for appreciation, the cap rates I will accept are pretty low. (If you look at residential through the lends of a cap rate)

What CAP rate do you seek? What do you call a "deal"?

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