C class MF with a 4.77% Cap Rate?

Question

I'm looking into a 36 unit MF (2/1) that the listing agent has labeled as a C class property but with a 4.77 Cap Rate. I own 3 SFH rentals and I'm a local agent. The MF is in the town I live so I'm familiar with it. Smaller town but the unit have been well maintained so deferred maintenance there. 25 of the 36 units are below market rent. Most of the units could use updating but are not horrible. No room for value add.NOI is around $180k

Typically a C Class property would be a higher cap rate like 6%+. Is this just the case of the agent labeling it the wrong class or is the cap rate off?

Trent Barga · Answer

@Adam Lacey Yeah I've noticed the competitive market place. I guess an investment is an investment but makes me wonder if the inflation and everything will come back to bite them, or we see a large increase in rent, etc. World is too crazy to have an idea what's going to happen.

John McKee · Answer

I don't know a thing about MF, but it sounds like you do have some value add in the fact that 25 of the units are under market. To buy a MF old building at 4.75% without any value add would seem crazy to me.

Adam Lacey · Answer

@Trent Barga not sure where you live, but there are many parts of the country where you'd be lucky to find a 4.7% cap. The market is so competitive right now, its kind of nuts.

Trent Barga · Answer

@Brian Pownall thanks. Not well versed in large MF so thanks for the info

Brian Pownall · Answer

Arn nailed it. Seeing some C class marketed around 4 in TX. Very likely it could be marketed aggressively but also not surprised.

Trent Barga · Answer

@Arn Cenedella

Thanks Arn they were built in the 1978-80s so that would make sense. Thanks!

Arn Cenedella · Answer

@Trent Barga

How old is the building? That will answer your question as to Class. Pre 1980 is almost certainly Class C.

Cap rates have depressed no doubt. Hard to buy anything today with a “true” (realistic expense ratio) at a 6% cap.