Hi BP,

I've been on the market for a multi-family property for a while now and actually had a deal fall through. Since then I've been having a hard time finding anything on the MLS. Everything is over priced and rents sometimes don't even cover the mortgage, but somehow these properties still get sold. Which is really confusing. What numbers as far as cap rate and cash on cash are ppl settling with? From all the calculations I think properties average right now 4% COC. I need to get creative and figure out how to find off market deals, but in the mean time I would like to know what other ppl think are good enough numbers to make an offer on a property?

Thanks,

Nicole

Hey @Nicole Kemanjian , you're right, it's insane what is selling out there these days. For me, I tend to look more at net cashflow. I want to be seeing $800-$1000/mo net (self managed) on properties in Utah for me to be interested. Which is only really possible with fourplexes every now and then.

Of course, what's net depends on what you put in as a down payment. How much are you looking to put down?

@Taylor Chiu I can put 20- 25% down. I'm trying to find properties that are 4 or more units. Maybe that's whats going on. It's more of a cash market. 

I hope so. Otherwise a lot of these buyers are going to be barely break even from month to month.

The magic number differs for every investor, and will vary widely from market to market. 

What I see sometimes is (especially with properties in highly sought-after neighborhoods) is some buyers are willing to park cash in real estate just to capture the appreciation. They aren't worried about covering debt service, and just need to be cash flow positive with a modest cap rate in order to meet their goal of hedging against inflation.  

It's tough to compete against these investors with a financed acquisition, simply because they are willing and able to accept lower returns (and thus pay a higher price). 

As an example, consider a $1M property with rental income of $80k/yr and 50% expenses ($40k NOI):

That's a 4% cap rate. If I have $1M cash that's sitting in the bank doing nothing, I might be quite willing to take a 4% return (on an appreciating asset) and pocket $40k/yr in extra income. 

But that same $40k in net income won't even cover debt service on the property at 70% LTV, so it's a non-starter for someone looking to put 30% down.

These are just two examples two different investors with different goals and property requirements. 

I suppose the moral of the story is to keep looking for deals that fit your needs, and don't worry about what everybody else is doing.   

I haven't been able to find anything with numbers that work for me along the wasatch front.  Prices are crazy and with financing, most won't cash flow like I like them to.  I just sold a duplex here because of the high prices.  A little over a year ago, I bought a 5 plex in Roosevelt, Utah and even with a property manager, I am able to get it to cash flow.   I have found that numbers in Uintah Basin and Price work.  I've also been looking in Oklahoma.  I've owned properties in Ohio with a property manager for about 10 years, so having a long distance property with a property manager is something I'm used to doing and know that it can work.  

Honestly speaking the only place that looks close to the 1 percent rule when listed on MLS is a quadplex in West Valley. Currently in Utah its best to look for off Market deals cause on the MLS it doesn't make sense.

The multifamily market in Salt lake and Utah counties is extremely tough.  If you can get a 4% cap right now you are doing better than most.

Eastern UT has some opportunities. Significant issue we have out there are resources / contractors, municipalities that are not investor friendly, and the instability of the mining and oil industries.

You can still find single families that cashflow $800/mo. I have one under contract even in this market. I purchased one last year that had a MIL and it cashflows $950. Prices have gone up which is why this new one will only cashflow $800 but they are pretty identical. And that is with usimg MACU 10% investment prop down payment.

Maybe change your search perameters?

@Jeff Copeland That is some great insight. Thank you! 

@Blair Poelman What areas specifically in eastern UT?

@Nik Krohn I definitely need to look at changing search parameters. I'm thinking maybe northern UT. I really want a multi-family and not so much single family. You are getting great cashflow though.

@Nicole Kemanjian sent you a DM

@Nik Krohn How are you finding your deals?