What is the cap rate in your city?

71 Replies

For those of you who have done a deal recently, I'm curious what the cap rate is in your city.

City?

Single Family or Multifamily?

Cap Rate?

Property Class?

Purchase Price?

I’ll go first:

Phoenix

Single Family

6% Cap

Class A

$375k

Hey @Whit B. , I chased these down on here regularly for a while and then I stumbled across the quarterly publications that Price Edwards and a few other Institutional commercial brokerages put out and it upped my understanding of the local cap rates and overall investment scenarios 10x.  

May they be a blessing to you, too!  

@Will Fraser thank you sir. CBRE publishes a similar report for MF here in Phoenix but that’s a huge undertaking to seek out one for each city.

Any other suggestions?

Originally posted by @Whit B. :

@Russell Brazil would you say that’s typical of the area over the last couple years or trending in one direction?

 Trending downward as prices rise

Originally posted by @Whit B. :

For those of you who have done a deal recently, I’m curious what the cap rate is in your city.

City?

Single Family or Multifamily?

Cap Rate?

Property Class?

Purchase Price?

I’ll go first:

Phoenix

Single Family

6% Cap

Class A

$375k

Why would anyone be interested in this? You could be the worst investor ever! Your figures suggest you thought you bought $22,500 of NOI but how do we know how you calculated that? And 6%? All that tell us is that you thought you were paying $16.67 for every dollar of your calculated NOI. How would you think that is helpful to an investor?

 

@Whit B. generally speaking CAP rate is not a great measure for single family homes. Demand for single family homes is driven more by owner occupied, rather than investor return. CAP rate uses NOI, which is pretty easy to find for larger multifamily or office space. These properties are run like businesses, so they have operating statements. When you get into single family, people often fail to include many expenses when calculating NOI. For example; insurance, taxes, leasing, management, vacancy, CAPEX and even repairs in some cases. You find real estate agents saying Annual Rent is X and they divide by purchase price, then call it CAP rate. Or they just subtract insurance and taxes and consider that all expense. I have even seen agents say things like "they managed themselves so there is no management expense". That is like saying "the owner was a plumber so the plumbing repairs were free".

No problem calculating it for single family, just make sure the number is all-in and be aware many people calculate CAP rate wrong on single family homes. Qualify the data before using it. If CBRE is doing it, you can be sure they are looking at true NOI, but I doubt they would look at single family.

On your property example the net income per month is $1875. What is the actual rent you are charging per month?

CapRates are really "soft" numbers since they're reported.  Their representative accuracy depends on the 3rd party and what number they used (actual or ProForma) and involvement (seller/buyer or, god forbid, a broker).

Having said that, in Portland proper, 5.5% on REAL numbers.  It's gone up with the crazies running the city looking to kill landlords.

Don't laugh, but $/SqFt is usually pretty predictive and linear.

Originally posted by @Whit B. :

@Will Fraser thank you sir. CBRE publishes a similar report for MF here in Phoenix but that’s a huge undertaking to seek out one for each city.

Any other suggestions?

Here is someone want your money to tell you what historical rates have been in different cities.  What use would it be to you?  

The link won't copy.  Go to youtube and search cap rate calculator.

https://www.momentummultifamil...               They call it a calculator but it only seems to report past cap rates.  I asked you a couple of honest questions.  I don't understand why that upset you so.  Maybe you shouldn't be investing in RE.  

It is like asking men their penis size.  Geez, how did they measure and of what use would the results be? ;-)
@russel brazil reported buying NOI between $33.33 to $16.67 in the same location. What does that mean? By the way, a strong 9.

 

@Joe Splitrock @Steve Morris

I realize the question is subjective and wide open for error on the side of the operator. I'm hoping seasoned investors who have accounted for maintenance, capex, management, etc appropriately will chime in. Perhaps that's wishful thinking.

@Joe Splitrock the rent is $2,450

In general the commercial market cap rate in my area is 5.5. I can beat MLS listed offerings return handily and with a lot less work in other asset classes like paper equities.

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

@Steve Vaughan I agree. Thanks for the feedback. I've had the same debate internally. When I factor in the appreciation that the current Phoenix market is experiencing and the tax benefits my ROI becomes much better than I'm able to find in paper equities at the moment.

People tell me that you shouldn’t count on market appreciation when making these decisions....but I can’t blindly ignore an entire aspect of an investment.

Originally posted by @Steve Vaughan :



I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

 

Originally posted by @John Erlanger :
Originally posted by @Steve Vaughan:

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

Whether it's actionable or not for you doesn't matter to me. I don't recall asking your opinion.

As someone in the preservation phase of their financial journey all I said was any less than a 7% return I'll invest in things that require less work. Return meaning IRR, which factors in PP, which factors in cap rate as a return metric.

ROE is dependent on financing?  I don't see that, unless to argue that I could put financing on RE at less than 7% to optimize return.  But whatever,  I buy mostly with cash, but may begin to put financing on buildings as rates trend lower. 
 

Originally posted by @Steve Vaughan :
Originally posted by @John Erlanger:
Originally posted by @Steve Vaughan:

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

Whether it's actionable or not for you doesn't matter to me. I don't recall asking your opinion.

As someone in the preservation phase of their financial journey all I said was any less than a 7% return I'll invest in things that require less work. Return meaning IRR, which factors in PP, which factors in cap rate as a return metric.

ROE is dependent on financing?  I don't see that, unless to argue that I could put financing on RE at less than 7% to optimize return.  But whatever,  I buy mostly with cash, but may begin to put financing on buildings as rates trend lower. 
 

Um, I didn't give an opinion.  I asked how that was actionable to YOU.  If you are just playing with meaningless calculations that is on you.  The market must be tanking for some if a simple question is met with such irritable replies!    

ROE is your return on equity. Do you know how to calculate that? If you put 99% down or 1% down your equity and financing will change the ROE. Am I wrong on that?

And how is that 7% cap rate a return?

Recently finished AI's Advanced Income Capitalization Course so anxious to use the learning.

Check this out,  https://www.biggerpockets.com/...

Originally posted by @John Erlanger :
Originally posted by @Steve Vaughan:
Originally posted by @John Erlanger:
Originally posted by @Steve Vaughan:

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

Whether it's actionable or not for you doesn't matter to me. I don't recall asking your opinion.

As someone in the preservation phase of their financial journey all I said was any less than a 7% return I'll invest in things that require less work. Return meaning IRR, which factors in PP, which factors in cap rate as a return metric.

ROE is dependent on financing?  I don't see that, unless to argue that I could put financing on RE at less than 7% to optimize return.  But whatever,  I buy mostly with cash, but may begin to put financing on buildings as rates trend lower. 
 

Um, I didn't give an opinion.  I asked how that was actionable to YOU.  If you are just playing with meaningless calculations that is on you.  The market must be tanking for some if a simple question is met with such irritable replies!    

ROE is your return on equity.  Do you know how to calculate that?  If you put 99% down or 1% down your equity and financing will change the ROE.  Am I wrong on that?

And how is that 7% cap rate a return?

Recently finished AI's Advanced Income Capitalization Course so anxious to use the learning.

Check this out,  https://www.biggerpockets.com/...

Thump your little textbook on someone else.  I don't want o be mentioned or tagged by you anymore. 

 

Originally posted by @Steve Vaughan :
Originally posted by @John Erlanger:
Originally posted by @Steve Vaughan:
Originally posted by @John Erlanger:
Originally posted by @Steve Vaughan:

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

Whether it's actionable or not for you doesn't matter to me. I don't recall asking your opinion.

As someone in the preservation phase of their financial journey all I said was any less than a 7% return I'll invest in things that require less work. Return meaning IRR, which factors in PP, which factors in cap rate as a return metric.

ROE is dependent on financing?  I don't see that, unless to argue that I could put financing on RE at less than 7% to optimize return.  But whatever,  I buy mostly with cash, but may begin to put financing on buildings as rates trend lower. 
 

Um, I didn't give an opinion.  I asked how that was actionable to YOU.  If you are just playing with meaningless calculations that is on you.  The market must be tanking for some if a simple question is met with such irritable replies!    

ROE is your return on equity.  Do you know how to calculate that?  If you put 99% down or 1% down your equity and financing will change the ROE.  Am I wrong on that?

And how is that 7% cap rate a return?

Recently finished AI's Advanced Income Capitalization Course so anxious to use the learning.

Check this out,  https://www.biggerpockets.com/...

Thump your little textbook on someone else.  I don't want o be mentioned or tagged by you anymore. 

 

 As my Mentor always says, If someone is too smart to answer a simple question then they have given their best answer.  Bye, bye.

@Brett Tvenge

Hi Brett, appreciation can be huge, but the reason why some folks don't include it in their business model is two fold: 1) it is very hard to predict when it will end or reverse. Fair to say that rents too can change, so nothing is guaranteed. 2) it's less useful to people who want or need cash flow. Cash flow, and tax advantages of rentals puts money in our pockets we can see immediately without having to refinance or sell. Of course the mortgage pay down and appreciation are huge wealth building tools long term, most investors are starting out where the cash flow is more important to them now.

     I like to make deals that I think will appreciate well, but for my position, it has to be icing on the cake! The cash flow has to stand on its own, even when appreciation has been strong recently (which it has been in my market too, most markets I believe.)

Originally posted by @Tyler Bobo :

@Brett Tvenge

Hi Brett, appreciation can be huge,      

If you are using direct capitalization (cap rates) to value a property you should realize that the anticipated "appreciation" is baked into the cap rate. The only way for a property to increase in value is with rising rents, compressed cap rates or decreased expenses. That is one of the reasons investors will pay $20 per NOI dollar (5% cap) vs $10 per NOI dollar (10% cap) The anticipated "appreciation" is baked into the valuation method so to call it "icing on the cake" just means you didn't realize when you paid for frosting!

 

Originally posted by @John Erlanger :
Originally posted by @Steve Vaughan:
Originally posted by @John Erlanger:
Originally posted by @Steve Vaughan:

I am a buyer when the market cap for quality is closer to my ROE min of 7. I can still purchase at that, just not on the MLS.

Since cap rate is agnostic about financing and ROE is 100% dependent on financing and cap rate values property and ROE measures return how do these meeting at 7 have any actionable meaning?  

Whether it's actionable or not for you doesn't matter to me. I don't recall asking your opinion.

As someone in the preservation phase of their financial journey all I said was any less than a 7% return I'll invest in things that require less work. Return meaning IRR, which factors in PP, which factors in cap rate as a return metric.

ROE is dependent on financing?  I don't see that, unless to argue that I could put financing on RE at less than 7% to optimize return.  But whatever,  I buy mostly with cash, but may begin to put financing on buildings as rates trend lower. 
 

Um, I didn't give an opinion.  I asked how that was actionable to YOU.  If you are just playing with meaningless calculations that is on you.  The market must be tanking for some if a simple question is met with such irritable replies!    

ROE is your return on equity.  Do you know how to calculate that?  If you put 99% down or 1% down your equity and financing will change the ROE.  Am I wrong on that?

And how is that 7% cap rate a return?

Recently finished AI's Advanced Income Capitalization Course so anxious to use the learning.

Check this out,  https://www.biggerpockets.com/...

John, You come across as agitating and provocative starting with your first post. I'm actually interested in this question too, so would like to hear others input...perhaps I dont know enough about this residential commercial space, but so
far dont know how a cap rate wouldn't be one important metric to consider (among others), especially if speaking with a lender.

Also, in our area, for higher quality multi residential (perhaps A- to B), I seem to see sub 7% cap rate which seems expensive. Sometimes around 5% (A-  @ $750k) which personally sounds awful to me. But there are odd properties, they can be found at much higher cap rates (14%), for some reason in rural areas. But again, I'm not a pro in this space.

Just a 3rd party observation to the discussion. 

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