High cap but low price to buy.. catch?

Question

I see some areas has super high cap rate ( around 15% ) and per unit price is very LOW.

Not much crimes.      And, there are lots of inventory to buy.

WHY?

Charley C. · Answer

look at the leases and the deposits, look at the payment histories, and high cap rate also usually is because its not historic, its "projected"

also get your hands on the bank statements and track the deposits and see if they were weeks after the due date.. look at the accounting software too.. also see if they rents are not collected in one solid payment, see if tenants are paying half, then a little more a week after it was due., Always a reason.

Brandon Sturgill · Answer

@Ethan Smith Are they near a major airport...or swamp, maybe?

Lien Vuong · Answer

Low tenants, declining job market, some sort of industrial component, or stigma with that property. Ask locals and neighbors - they would be a great resource.

Todd Dexheimer · Answer

I would expect that there are issues. Likely the property has very high vacancy and/or high expenses. The other probability is that it's not a 15 cap on todays numbers, but a 15 cap on what the broker pro-forma says. The actual performance is likely much lower

Russell Brazil · Answer

High risk, low demand.

Chase Louderback · Answer

If there are a lot of those properties in a specific area then usually it is because: declining market, something serious about to change in the town or nearby that would devalue to properties, very distressed and not currently performing property, or war zone.

In this market, it's usually a combination like war zone and distressed.

Matthew Baltzell · Answer

@Ethan Smith I would look for news articles about the area, see if anything is happening in the area.

Maybe there are developments you're unaware of.

What type of property is this?

Oleg Shalumov · Answer

@Ethan Smith could also be low income (with not much crime) location. Could also be too many properties for a decreasing population city where is not much employment.

Ray Harrell · Answer

Maybe they are planning to put a landfill a block away. There's always a reason. Otherwise people with unlimited funds would have snatched those up right away.

High cap but low price to buy.. catch?

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