Commercial Investors — Cap Rate or Cash Flow First?

[Stevan Stojakovic]

When analyzing a commercial property, what drives your decision more: the cap rate on paper or the actual net monthly cash flow?

[Evan Polaski]

I am trying to think of any time cap rate would matter more to me, so cash flow would be the primary driver.  But, I invest in heavy value-add deals, so there may be no cash flow for a couple years, but upon stabilization I am getting significant cash flow as well as appreciation.  I also invest in more core+ type deals, where I am getting a decent cash flow from day one.  

But, in either scenario, the cap rate alone is pretty meaningless and only really used for exit valuations of the stabilized asset.  

This is all assuming I am buying with some level of debt.  If I am buying all cash, then your going in cap rate should be fairly close to your initial cash flow rate.