NOI & CAP Rate Expectations - Avondale 3 Flat

[Andy Huber]

Hi All - New to the forum/site, many thanks in advance for any feedback.

I'm targeting 3-Flats in and around the Avondale area, and am looking for perspective on the following...

1. What I should expect for a CAP rate? (6%+ is my current target)

2. What should include in my NOI calculation? I'd like to include allowances for vacancy, CapEx expenses, and property management (though the initial plan is to self-manage). I've been told that if I include those 3 (in addition to the usual: taxes, insurance, water, trash, electric, gas, & maintenance budget), I'll never get a 6% CAP rate. Thoughts on that perspective?
 

Thanks in advance,

Andy

[Peter Halliday]

Cap rate is not a meaningful metric for small multi family. It frankly doesn’t matter what the caprate is because they’re valued at comparable sales. It may be helpful, but because they are typically bought by people who are living in them also drives the caprate down. I can tell you from first-hand experience that small multi family in Avondale very by Rate based on a lot of factors. Some of these factors are condition, location in the neighborhood, and property management choices. 

That being said, I believe whenever you buy residential real estate you need to make sure you are covering all the true expenses including capital expenditure and regular repair and maintenance. Most small multi family investors focus more And cash on cash return than they do cap Rates frankly