👋What is Considered a Good Multifamily Cap Rate?

Question

What is Considered a Good Multifamily Cap Rate?The short answer is it depends!There’s no universal standard since it relies on two main variables–your investing objectives and current market conditions.Some key factors influencing a good cap rate include:/ Property location/ Building condition/ Asset type (class A, B, C)/ Overall real estate market dynamicsTaking these into account helps set realistic cap rate expectations, but historically, rates between 4-10% are often seen as solid.Of course, a “good” cap rate for you might fall outside that range based on your investing goals and the specific property/market, so don’t get hung up on chasing a specific cap rate number.

What is a good cap rate for your market?

Chris Seveney · Answer

Also people need to realize cap rate is just one metric for investing. A cap rate of 6% but needs $1M in capex compared to a cap rate of 4% and new construction could find you that the 4% is a far better deal.

Trevor Richardson · Answer

In Reno, NV a good cap rate for stabilized multifamily is 5-5.5%. That means it’s new or a renovation was done.

We have seen some proforma cap rates hit high 7s or even 8s like a deal we just closed in Carson City (8units).

Basically since high interest rates northern Nevada has moved a full 1% up.

Adam M. · Answer

@Chris Seveney hit the nail on the head here! I fear investors can become fixated on market cap rates but there are so many factors that go into both high and low ends of the spectrum.High cap rates can generally yield better cash flow opportunities considering you are purchasing at a low price to NOI ratio but may be an indicator of a dwindling market considering valuations are staunched.Lower cap rates can generally yield better appreciation considering a small NOI increase can shoot values up further than that same increase in a high cap rate market. However as Chris mentioned, this is one way to value assets. Market comps, build to cost are just a few others.

Justin Goodin · Answer

Great breakdown!

Carrie Matuga · Answer

Look at NAR reports - you can see what properties list for and close for. Ask commercial brokers in your market too!

Robert Rixer · Answer

To add, interest rates greatly affect market cap rates too

👋What is Considered a Good Multifamily Cap Rate?

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