Rental Property Investor · Mount Laurel, NJ · Member since 2015 · 55 posts · 9 votes
I am looking to upscale on my duplex, to a 5+ unit complex, and am wondering where the best places to look are? How important is cap rate when buying commercial properties?
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y
@Kyle Brown. The best places to purchase commercial real estate is where the jobs and people are heading to. Right now that appears to be the SE, Texas and some cities in Arizona as well. I think the midwest will always be steady as well.
In terms of cap rate, you should try to determine what the prevailing market cap is for your submarket. It is sometimes worth it to overpay for a value add opportunity, depending on the increase in NOI that you can achieve.
Investor · Glen Mills, PA · Member since 2019 · 185 posts · 208 votes
5y
Look for any emerging market that is thriving in terms of population growth, income growth, job growth, rent growth, and with job diversification across employers/industries. There have been several articles/blogs here pertaining to 2021 areas to invest in, check those out as well.
As far as cap rate - to me this is not absolutely critical in the buy or not buy decision but rather one input/indicator as part of the process simply expressing a sentiment of demand for a given sub market. As you get to know your market(s) well, you will quickly learn what a certain class has been selling for in recent times.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@Kyle Brown, are you asking for geographies to buy in or how do you find 5+ unit properties, i.e. MLS, Zillow, Loopnet, etc?
If you know which market you want to buy in, you will find most properties in the 5-8 unit range on the MLS. You can also find a lot of properties in that scale on LoopNet. The small multifamily section (which I would put as anything under about 20) is pretty fragmented still. I see residential agents list, some of the larger brokerages (CBRE, Colliers, Cushman, Berkadia, etc) handling that size, and then a fair number of niche players. Thankfully, the niche players seem to use LoopNet, so click on a lot of listings, even that don't meet your criteria and start calling to introduce yourself and get on their buyer lists.
If you are talking about which markets, again, your scale matters a lot. I would say roughly anything under 50 units, you will have pro trouble selling to local buyers, so really any market will do. When looking at large, institutional grade assets, you need to be in high growth markets where those buyers would be interested.