Does cap rate matter??

[Ethan Bruland]

I’ve analyzed a lot of deals and seems like I’m hot and cold on cap rate. Used it frequently once I found out what it meant. Then it faded into the dust. I focus more on cash flow or the gross cap. What multipliers are good ones? A lot of analysis paralysis in this market as deals are harder to find. 

It feels like I’ll find what I think is a good investment then do too much analysis and look at the cap rate and it puts doubt into my mind. Find the cash flow and run with it?! 

I forgot how much I love this website. Blessings to all of you!

Ethan

[Greg Scott]

If you are looking at single family, duplexes, triplexes, quads, Cap Rate is a completely irrelevant metric.   The appraised value on those properties is based on Comparative Market Analysis (Comps) which has ZERO to do with Cap Rate.

On commercial properties, including apartments, appraised value is determined using the income approach.  The income divided by the Cap Rate determines value.  In that sense, Cap Rate is a critical component that you must know.

I have no idea why BP puts Cap Rate into its calculators for single family.  To me it seems like a rookie mistake.