Lowest CAP Rate you would accept

5 Replies

What is the lowest CAP Rate that you would consider for a Single Family Home rental investment property?

Thanks in advance for you collective knowledge

Joe

It all depends on the market.

If the market appreciate fast like California, I’m willing to accept lower cap rate.

However, for market appreciate slow, I require higher cap rate.

All markets are different.

Where I live in CA, I look for 6%.  Out of state, I look for 10%.

@Joe Zinger Similar to Account Closed my sentiments are that it's really market dependant. The error of using "cap rate" with an SFR aside, the valuation methods are different. I could be a "horrible" cap rate by buying the home next door to me at 70% of fair market value. I'd probably end up being cash-flow negative. But I would still do it. It would (in my opinion) still be a great investment thanks to the built-in equity. And I would just stomach the negative cash-flow. I'd hope that Prop 13 and rising rents would eventually help the cash-flow and leave me a happy camper with equity and cash-flow. With an SFR I don't need to look at NOI and prevailing cap-rate to posit a value, I have comps for that. Anyway, the investment landscape where I invest is materially different. There I would love to see projected 10% cash-on-cash return but I really focus more on the micro-area and the specific property. If I believe in those latter two items I'm not going to let 7% vs. 10% dissuade me. Nor would I let 15% or 20% CoC projections coax me into going to an area I'm not comfortable with or don't believe in. Anyway, that's enough rambling for now.

Minimum 18 cap but then again I am looking at areas which don’t go up or down in value

Personally I choose not to play real estate like the stock market hoping/planning for it to go up and not down 

It completely depends on what I'm buying. The higher the risk, I better see a higher projected Cap Rate coming with it. The lower the risk, the lower the Cap Rate I'm willing to accept. Different locations mean different acceptable Cap Rates too.

Here's details I wrote on it awhile back-

https://www.biggerpockets.com/renewsblog/2016/02/2...

Hope that helps!

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