Creating Wealth in ultra low CAP rate market

[Brian Jung]

Hello fellas, 

I live in Vancouver. One of the best cities to live in according to many. But not so true for the market. Not just in vancouver but anywhere in Greater Vancouver Area and it's vicinities (I am talking about 200-300km out) It is extremely difficult to find a deal over 6% cap rate. Of course, this gets lower in great vancouver area to about 2-3% Cap rate for multi family. 

I read a number of books on investing, and they all rely or base their investment on finding a "good" deal, where the cap rate is high enough for you to generate income. However, when the cap rate is dropping below 5%, it is difficult to justify your investment. (at least for me ) I believe this is because people expect the appreciation in Vancouver to be so much that they don't mind low cap rate....

I guess one way of solving this issue is buy -> renovate / upgrade -> increase rent -> increase cap rate. But is this the only way ? I'd like hear some of the expert's opinion on this. PLEASE enlighten me. 

Thank you

[Russell Brazil]

Cap rates are indicative of the risk of the asset and or market. They are not indicative of your return. If you are in a low cap market, that means the market views your market as low risk. With the lower risk typically comes outsized asset value growth, outsized rent growth, lower vacancies, lower problems. Low cap rate markets tend to outperform high cap rate markets.