Rental Property Investor · Downey, CA · Member since 2017 · 347 posts · 25 votes
Hello,
Can you apply the cap rate to multifamily 4 units or less when you get a conventional loan with a bank or is better using cash on cash return metric?
@Horacio Gutierrez you can use it to compare the return on different properties, but you cant use it to determine value. I use cash on cash because I use leverage to purchase
You can use it as a metric in your own calculations (mostly to compare to other similar units), but overall, caprates are pretty useless with 1-4 units. Banks will not consider them, only appraisals.
CoC ROI applies, but banks don't care much about how much money you are making on the deal. Their primary concern is with the Debt Service Coverage Ratio when looking at an investment property.
Both, if by "debt to service" you meant Debt Service Coverage Ratio. Those two things are a primary concern of any conventional lender.
If this is something you'll be living in (your primary residence) banks will be more lenient. If it's a true investment property, they will impose stricter requirements.