Buying Rental - Cap Rate

[Aaron Olson]

Hello,

I recently found this site and have been doing a lot of reading on it. I have been exploring buying my first rental property. I have been focusing on looking for a single family home. My reason for doing this is i am tried of lack of control of driving profits on my money in the stock market, etc and I want to be the driver as to if i make or loose money. I have owned 3 homes where i bought with open basements that i could complete and be out to do it all over again so i am a handy guy.

In my area I think we can get about 1000 (conservative) a month for a 3 bedroom 1+ bath. Twin homes/homes similar to others going for the 1000 run currently about 135,000. Our market was little changed even during the "bubble".

My question is, this seems to yield a cap rate of about 5% which in my reading is low and would ideally be about 10%. Would anyone ever buy something like this and if so when does it make sense to do this? If it doesn't why?

Thanks again for the help and the site.

[Bill Ham]

Cap rates are typically used for Multifamily not single. Use a simple ROI calculation or debt service coverage ratio. I agree with @Will Barnard, try multifamily if you are looking for cash flow. Often you will find that the rents are not much different between a single or multifamily unit but the expenses and turn costs are much greater in singles. In multi you get the effects of economy of scale and cash flow can be much more significant.