Rate of return on mult-family (8+ units)?

Question

Hello BP Family - I am looking to move into multi-family buildings (8 units or more) and wondering what rate of return should I be aiming for in this market? Obviously, the higher the better but looking to get some ideas on the baseline or a ballpark range. It feels quite different to me between SF/Duplexes to large multi-families. Any insights you can provide will be greatly appreciated.

Charles Carillo · Answer

@Lalit Arora

I personally have cash-on-cash return minimums that I normally adhere to but for me it depends on the size of the property and the time that is going to be required on my part. I am willing to accept a lower return for less of a time commitment.

I commonly see with new investors that they are searching and sorting properties only by the potential returns which is an issue. The reason being that most high return properties are in terrible areas that will not gentrify in the next 15+ years. I am willing to take a lower return in a growing area compared with high returns in a war zone with no real exit strategy other than cashflow and headaches.

Carlos Ptriawan · Answer

The cap rate is dictated by the regional area and neighborhood class. Just check crexi as comparison for ppu and rent per unit. Many times you could get 2.0 DSCR property in 8 unit complex and also in 2 unit duplex in the same zip code.