Good Rent Revenue Multiplier on a 4 Plex

[John B.]

Hi all,

I'm currently evaluating my first fourplex. When determining my purchase price, should I be placing more weight on the cap rate or rent revenue multiplier? If the latter, what would be a good RRM? Below are some bullets on the deal:

Property type -- Four plex (all 2BD/1BA).

Year built: 1915

Location: Kansas City, MO. Midtown/Hyde Park area. Older, dense infill, gentrifying. B/B- location

Avg Unit size -- 850 SF

In place Rent -- $640

Cap Rate: 7.0%

Rent Rev Multiplier: 6.98x

The 7.0% cap rate seems tight, but I don't have a feel for where RRM should be.

Appreciate your input.

Regards,

John

[Logan Hassinger]

@John B.

Value the property based on its income and expenses, despite how others lean on GRM or cap rates. Yes they can give you a general idea of the market and what others are willing to accept, but value it based on what YOU need.

Back into your purchase price based on the buildings specifics and the return metric that best fits your needs ie. COC, Rental Yield, IRR.