Buying 8% cap deals

Multi-Family and Apartment Investing
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Buying 8% cap deals

Laurence J.Pro Member
Rental Property Investor · Chicago IL · Member since 2013 · 27 posts · 42 votes

If I wanted to buy long-term buy and hold rental properties, small or medium multifamily with 8% cap rates around Dallas, Austin, Charleston, Cincinnati, etc is that possible and how would you recommend sourcing those deals?

BiggerPockets
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Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
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First and foremost you should be focusing on narrowing down your location. The markets you chose are extremely broad and looking at deals under such a large umbrella can sting if you don't have proper due diligence. Different markets produce different results. Different markets also have different restrictions, rent regulations, tenant quality, etc. it will be impossible to compare an 8% cap rate MF building in cincinnati to an 8% cap rate building in Austin. They are complete separate things...

Real estate is more than just numbers and math. Your location is first and foremost the most important thing. There are areas in my local market that I still havent discovered - I cant imagine casting such a wide net on location when looking - I'd be extremely overwhelmed.

Focus on a location that you know extremely well - narrow down your buy box as much as possible and go from there.

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  • Denise SuppleeBusiness Member
    Realtor · Willow Grove, PA · Member since 2017 · 969 posts · 638 votes
    2d

    Hi @Laurence J. Be careful focusing only on an 8% cap rate. From my experience, the highest cap rate isn’t always the best deal.

    For long term holds, start with the fundamentals: job growth, population trends, landlord laws, neighborhood demand, and the operator or management team. Talk to brokers who specialize in multifamily, and operators already active in those markets.

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    • Laurence J.Pro Member
      OP
      Rental Property Investor · Chicago IL · Member since 2013 · 27 posts · 42 votes
      2d

      @Denise Supplee thanks! Do you recommend starting with the broker then and asking them to source the deals? All my current properties are in Chicago but I’m looking to diversify out of state.

      BiggerPockets
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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 846 votes
    2d

    It’s possible, but I wouldn’t get too focused on finding an exact 8% cap rate. I’d first figure out what kind of risk you’re taking to get that return. Sometimes a higher cap rate is there because there’s a real opportunity to improve the property, and sometimes it’s there because there are problems.

    I’d spend time building relationships with brokers who work with investors in those markets, property managers, and other owners. A lot of good deals never make it to the big listing sites.

    The best deals usually come from relationships. The more people who know what you’re looking for, the more likely you are to hear about something before everyone else does

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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 496 votes
    1d

    I would encourage you to visit the markets you are thinking about investing in since I work with a lot of out of state investors and sometimes they are a bit surprised when they visit properties that they bought from out of state that they didn't visit beforehand.

    If buying non owner occupied rental properties, DSCR loans are an option where you can structure the loan based on the actual or projected property rents and not your personal income or debt to income (DTI) ratios. Happy to connect to discuss further.

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  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1d

    Don't get buried in the spreadsheet just because that's what you've been taught to do. One person's 8% cap rate is another person's 6% cap rate, and the broker marketing the property may call it 12%. Different operating expense assumptions produce different NOI figures.

    It is very important to understand your actual operating expenses and capital costs. But I’d spend just as much time understanding where the market is headed. What do tenants want? What’s missing from the available supply? What would make it difficult for someone else to deliver the same product?

    If you can meet a real need in a market with limited supply and meaningful barriers to entry, you may have a good investment even if it doesn't fit as neatly into a spreadsheet today.

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1d

    @Laurence J.

    hi Laurence. you may know this, but in my experience, small multis aren't generally valued on cap rate.

    and - i looked at your profile, and it looks like you're having success in Chicago. so... i'd keep doing that. why pick a random market instead? what am i missing?

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    • Laurence J.Pro Member
      OP
      Rental Property Investor · Chicago IL · Member since 2013 · 27 posts · 42 votes
      1d

      Thanks @Nicholas L. I'm looking to extend outside of Chicago simply because I don't like the direction the city is taking on policy and the risk it could present. I'm also just looking to do more real estate in general and so looking outside of Chicago just opens more potential for finding deals I like.

      Curious what metric(s) you'd suggest if not cap rate? Historically, I just optimize for cash-on-cash, but with interest rates being a major driver of that, figured cap rate equalizes a bit.

      What's your story on flipping? I had a post the other day asking if its as a good idea for me to convert some of my three-flats into either condos or into a single family home and sell them, and thats my exit path for Chicago. What are your thoughts there having flipped houses before?

      BiggerPockets
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  • Igor Ganapolsky
    Englewood, NJ · Member since 2018 · 461 posts · 82 votes
    1d

    hey laurence, different angle here - i've been buying at tax deed auctions in south florida and the math works out way better than traditional sourcing. you're getting properties at like 50-70% of market value so your effective cap rate ends up being 10-12% even if the property itself would only cash flow at 6-7% at full price.

    the downside is it's competitive and you need to move fast, but if you're comfortable buying sight unseen and doing light rehabs, the deals are there. i've picked up a few multifamily properties this way in broward county.

    happy to share what i've learned if you want to connect. good luck with the search!

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    • Laurence J.Pro Member
      OP
      Rental Property Investor · Chicago IL · Member since 2013 · 27 posts · 42 votes
      1d

      Thanks @Igor Ganapolsky do you have an example of deal? When I was in college I did tax deed auctions for trailer homes, but that was an interest rate play and never took possession of any of the properties. Is that similar to what you're doing and just need enough of a basket to eventually get at least one property?

      BiggerPockets
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    • Igor Ganapolsky
      Englewood, NJ · Member since 2018 · 461 posts · 82 votes
      1d

      @Laurence J. — good questions, and a quick correction on my comment above: I don't bid or buy at these auctions myself. I'm a bird dog — I pull the public-record diligence (liens, code violations, title red flags) so buyers know what they're walking into before they bid. None of my capital in the picture.

      Your college version was the tax *lien* side — interest-rate play, never took possession. Florida tax *deed* auctions are the other side: the winning bidder gets the deed and takes possession (subject to surviving liens — which is exactly what the diligence screens for). So less "basket of bets," more "underwrite each property and kill the bad ones fast."

      Live example I'm tracking right now: SLS Brickell condo, 1300 S Miami Ave #1605 — Miami-Dade tax deed case 2026A00212, auction Oct 8, 2 PM ET. Opening bid $77,160.29; county assessed value $819,010 (both verified on the county portal). Honest unknowns: the owner entity looks inactive, and HOA estoppel plus tenant/lease status are unknown — I never assume rentable.

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  • Alan AsriantsBusiness Member
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    1d

    First and foremost you should be focusing on narrowing down your location. The markets you chose are extremely broad and looking at deals under such a large umbrella can sting if you don't have proper due diligence. Different markets produce different results. Different markets also have different restrictions, rent regulations, tenant quality, etc. it will be impossible to compare an 8% cap rate MF building in cincinnati to an 8% cap rate building in Austin. They are complete separate things...

    Real estate is more than just numbers and math. Your location is first and foremost the most important thing. There are areas in my local market that I still havent discovered - I cant imagine casting such a wide net on location when looking - I'd be extremely overwhelmed.

    Focus on a location that you know extremely well - narrow down your buy box as much as possible and go from there.

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    2Reply
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