cap rates question

7 Replies

Loopnet has been sending me lots of multi family properties with cap rates listed. Do they pre vett these properties to come to these cap rates. I know to do my own due diligence I was just wondering if any of it could be considered a starting point. Thanks.

Nope.  Cap rates are provided by the seller or their agents.  Rest assured your actual cap rate won't be any higher than the claimed number.

Everything is provide by the seller so like everything else due diligence is required.

I have seen agents with no clue about cap rates use the gross income instead of NOI when calculating a cap. *Cringe*

Is this a correctly figured Cap Rate?

Gross annual rental reciepts- 28,200

Annual Taxes insurance -         3,720

Vacancy                                    2,800

NOI - 21,680 / 284,000 (Value)= 7.6% CapRate

Did I miss anything or offbase anywhere?

It looks right to me. Are there any expenses other than tax/ins/vacancy? What about repairs? 

In our market, we just do minor 5-10k rehab on houses, and then owner finance. Super simple and profitable. 12-14% cap is typical right now.

Thanks Joe. How does the actual cost of acquisition figure in? Same example as above, say you get into this for 56K now you are looking at 21,600/56000=38% return on investment? Isnt that a valid way to look at a a purchase?

@Garth Gissel  

That is but it doesn't evaluate your other costs. With a multi-family there are alot more costs. Some you pay utitilies, common area cleaning etc.