Targets for Cap Rate & Cash/Total ROI in SLC UT

[Account Closed]

I'm interested in purchasing a 4 unit MFH with FHA financing and I'm trying to figure what targets are reasonable in terms of:

Cap Rate

Cash ROI

Total ROI

Things seem to be quite expensive and negative cash ROI and 6% cap rate i model on a potential property have me thinking this is a great deal.

thoughts? let me know if further info is needed to fill any gaps

[Holden Latimer]

Where are you looking to buy in Salt Lake City? I bought a 4plex in the Rose Park area just over a year ago via FHA financing. It has been a good experience so far despite the bumps in the road.

4plex deals are interesting because unlike larger commercial deals, their market value is affected to a greater extent by market comps rather than off of the income they produce. I work primarily in the commercial realm for my day job, and was surprised to realize that I could not raise my value simply by increasing rents, reducing costs, and improving NOI. This helps, but in certain areas you can only raise the value so much before you hit a ceiling on value.

Despite the fact that my 4plex would not trade where I think it should from an income perspective, the good news is that I did not buy the property for appreciation alone, I bought the property for cash flow and it has performed beautifully so far. We rehabbed all the units and have raised rents by well over 20% and will be cash flowing around $1000/month going forward. Based on my go forward 10 year projections cash-on-cash returns should average 44.39% over the next 5 years.

CapRate wise (based on my original underwrite) I bought the property at a 7.11% cap. As I stated above, I probably won't be able to exit at a similar CapRate because of the location of my asset, but I should have some decent equity build up from the improved operations.

Hope this helps, and good luck in finding the right deal. If you would like I know another investor that is looking to sell a 4plex right next to mine, but his is fully renovated already and will likely fetch a premium. PM me if you are interested!