What Do you consider a good Cap rate?

[Dustin Lyle]

I read in a thread concerning California where multi unit residentials are selling around 4-5%.. which lead me to a good question.. As investors from across the country, what do you consider to be a good cap rate? Being realistic.. what do you look for in a rate of return per annum? Talking about multi unit residentials. Thanks ahead to anyone who responds.
Dustin

[Michael Rossi]

Forget the cap rates - they are a big joke except for very large commercial buildings (and even then they are usually a big joke). Cap rate is defined as NOI divided by the purchase price. To determine the NOI, you need to know the operating expenses. Therefore, to determine a market cap rate, you need to know the operating expenses for the area. That information simply does not exist and many (most) investors don't understand operating expenses themselves, let alone have accurate records for their property.

Finally, the vast majority of newbies fail in this business and the majority of rentals in the US are owned by individuals. So, even if you could get an accurate market cap rate, it would only tell you what the losers paid for their property!

My suggestion is to look at each individual property and see if it will cash flow. You can't eat cap rate, but you can eat with CASH!

Mike