CAP Rate Mesa, AZ (Multi-family unit)

8 Replies

I am seeing most MLS listings as low as 3-4.5% once you calculate a true stabilized NOI. This was about 6% two years ago. Make sure you do your own numbers. .. get accurate rent rolls and factor in accurate expenses. Most real estate agents list the cap rate higher than whats actually a reality. Personally, I am not interested in the risk for a 4% cap.

Hi Walter !

 My name is Larry Burr. I'm a real estate investment broker with Atlas AZ. We specialize in multi-family investment properties here in Arizona.  My team and I have personally closed over 40 quads this year. 

I'm generally putting my clients into properties that have a true stabilized Cap Rate of between 5.7 and 7.0.  

I personally have acquired over 400 doors for my individual portfolio over the past 20 years.

Happy to discuss the local market if you like.

Larry

Hi Walter !

 My name is Larry Burr. I'm a real estate investment broker with Atlas AZ. We specialize in multi-family investment properties here in Arizona.  My team and I have personally closed over 50 quads this year. 

I'm generally putting my clients into properties that have a true stabilized (including property management) Cap Rate of between 5.7 and 7.0.  

I personally have acquired over 400 "doors" for my individual portfolio over the past 20 years.

Happy to discuss the local market if you like.

Larry

Hi John,

The cap rate is just one of many metrics we look at when vetting a property for a client.

FYI...you get a cap rate by dividing the sales price + renovations into the Net Operating Income.

A cap rate by itself doesn’t tell you much. It’s just one indicator on how a specific property performs against other like properties at that moment in time.

An acceptable cap rate can vary by region, the current economic environment or the investor.

My team and I have closed approximately 50 multi-family deals this year. Most of my investor clients here in AZ are locking down deals with cap rates between 5.7 and 7.0.  Someone who would only invest in Southern California would be lucky to get a 3.0 cap.  

To answer your question....”sales comparison” is actually the last of the four comparison methods we use for income properties. This is because “net operating income” is the main driver of price, not what the unit down the street sold for.

Please feel free to reach out if you have any other questions.


Larry





   

@Larry Burr   Your answer confuses me.  A cap rate tells you what the probable market value is based on cap rate comps from similar buildings so it does tell you a lot.  Without a market value all your other calculations will be off.

Also a cap rate is not calculated using renovation costs.  Renovation costs would be a below the line adjustment after using direct capitalization to value the property.

Cap rates are also not a performance. if you buy NOI at a 4.9 cap rate or a 5.0 cap rate all it means is that you paid $20,41 per NOI dollar for one and $20 for the other. You cannot tell which performs better by the cap rate.

Sales comparison is the most accurate of the valuation methods, sales comparison, cost, and income.  If income properties all had rents that went to market each year then sales comparison would be used since it is more accurate and easier.

What do you think?