DFW cap rates and coc Multifamily

14 Replies

I know most of us don’t always go by the cap rate for property, but I think that’s probably what we have, to be able to compare properties and to sort of assess the market. For a class C product but in a decent blue collar neighborhood what cap rates and coc to expect in the current market for 1. Dallas downtown, further north, carollton, Irving, plano etc 2. Fort Worth 3. Arlington. Thanks

5-6% in general. 7% if you get lucky. Entrance cap rate does not have much use becasue your exit is priced based on future NOI and future cap rate.

As for CoC, it depends on your leverage but 8-9% starting in second year would be good.

Originally posted by @Sanjoy V. :
@Nick B. Well I am thinking if you enter at a higher cap, you have a better chance at staying at that cap or lowering if the market changes

 Sure, but chances of entering at a higher cap rate (means "low price") are pretty slim right now. 

Most properties are 5%-5.5% (class C). CoC depends on your business plan (turn key, light or heavy value add). In addition to the btoker, look at market reports (yardi has free reports, as well as cbre)

@Sanjoy V. From what I know & see DFW is already up there. Cap rates are severely depressed. Folks are buying C class properties with A cap rates. Unless the nos. make sense don’t buy it - smart money is on sidelines waiting for opportunity.
@Rich Lopes What do you think cap rates should be for c class? They do vary region to region. A class property price in Teritiary market may get you a c in a primary market take for example California

@Sanjoy V. , CA/DFW/TX now you are talking about 2 different geographies with their own vastly different economies - so it will be hard to compare the 2. The TX tertiary market (Kileen, waco) is similar or better than CA tertiary (Fresno, Madera, Stockton) market per my opinion. Now within these tertiary markets there are probably A - D class areas with A-D class properties. It's hard to find a A class product in D class neighborhood but it's probably possible to find D/C class product in A class neighborhood. What I am saying is in DFW, the gap between cap rates for C & A class products has shrunk quite a bit between now and what was it few years ago. What that means, you can probably buy an A class product with almost the same price or slightly more than what you would pay for C class product - so be wary of that.

For  A class neighborhood in CA, there is negative cap rate - because it's more of an appreciate play vs in DFW you might get is for 3 or 4%.

Originally posted by @Rich Lopes :

@Sanjoy V. , CA/DFW/TX now you are talking about 2 different geographies with their own vastly different economies - so it will be hard to compare the 2. The TX tertiary market (Kileen, waco) is similar or better than CA tertiary (Fresno, Madera, Stockton) market per my opinion. Now within these tertiary markets there are probably A - D class areas with A-D class properties. It's hard to find a A class product in D class neighborhood but it's probably possible to find D/C class product in A class neighborhood. What I am saying is in DFW, the gap between cap rates for C & A class products has shrunk quite a bit between now and what was it few years ago. What that means, you can probably buy an A class product with almost the same price or slightly more than what you would pay for C class product - so be wary of that.

For  A class neighborhood in CA, there is negative cap rate - because it's more of an appreciate play vs in DFW you might get is for 3 or 4%.

 Why is it a given that California will be a better appreciation market than DFW over the next 5-10 years?  If we end up getting HQ2, I think the returns will be better in DFW.  The growth is a lot higher in Dallas than anywhere in California.

@Bart H. that's what Mr. market / big investor is factoring into when they buy in CA markets based on past performance. It may not come to fruition but that's the trend otherwise there's no reason for them to invest. Investors like us look for market's like DFW and other parts where there is affordability hence creating demand for those markets.