Cap Rate on a Duplex in Toledo OH?

12 Replies

Hi All,  I'm looking at a duplex in the 43613 (west toledo) area code.  The seller may finance the deal so I'm putting together a bid.  I don't see many comps in the area that have sold recently so I'm struggling to figure out what a normal cap rate might be for a duplex in that area.  Can anyone help with their thoughts on what a reasonable cap rate might be for a duplex in West Toledo?

Luke I own three in 43608 just north of you. Post the income and expenses for the building and I will be happy to give them a glance. 

Thanks Andrew.  I'm still collecting the expense figures from the seller so for now I'm just using the 50% rule.  Income = $1250/month ($15,000 annual).  Expenses = $625/month ($7500 annual).  I guess I'm just looking for some ballpark guidance at this point to try and estimate an offer price.

Originally posted by @Luke King :

Hi All,  I'm looking at a duplex in the 43613 (west toledo) area code.  The seller may finance the deal so I'm putting together a bid.  I don't see many comps in the area that have sold recently so I'm struggling to figure out what a normal cap rate might be for a duplex in that area.  Can anyone help with their thoughts on what a reasonable cap rate might be for a duplex in West Toledo?

If you're doing all the work yourself you should be able to get 20% net.

Be patient and wait for the right deal to come along.

Thanks

Be sure to factor any rehab into the offer. Also, flood insurance is sometimes required in 43613. Just make sure to check on that with your insurance agent.

The 50% rule usually works for Toledo. But if you're paying for heat then it could easily be 60% (meaning your EBITDA is 40%). I can't give you a good number without a lot more details.

Also, due to the new lead based paint laws, if it's built before 1978 you may either want to re-think this deal or reduce your offer by at least $10k depending on condition. The seller may be dumping it so he can be out before the laws go into effect. I'm just speculating and thinking out loud...

Based on my original question in this thread, I've collected some more data to try and get a sense of the cap rates on multi-family properties in the West Toledo, Maumee & Sylvania.

I am surprised to see nothing above the 10% cap rate....and in fact very little over 9%.  The average for the 27 properties listed here is about 6.6%.  Does that surprise anyone here?  What do you look for in a cap rate for multi-family properties in these areas?

Property ID Capitalization Rate Cash on Cash Return (Traditional Financing) Annual Cash Flow GRM 1% Rule
Property 1 - Sold 9.97% 28% $ 9,204 66.6 1.50%
Property 2 9.01% 24% $ 5,640 66.6 1.50%
Property 3 7.96% 18% $ 7,176 75.3 1.33%
Property 4 7.89% 19% $ 3,528 76.0 1.32%
Property 5 7.81% 18% $ 3,660 76.8 1.30%
Property 6 7.77% 17% $ 2,952 77.2 1.30%
Property 7 7.58% 17% $ 3,360 79.1 1.26%
Property 8 7.51% 17% $ 3,360 79.9 1.25%
Property 9 7.51% 17% $ 3,360 79.9 1.25%
Property 10 7.17% 14% $ 2,586 83.6 1.20%
Property 11 6.75% 12% $ 4,404 88.9 1.13%
Property 12 6.52% 12% $ 2,688 92.0 1.09%
Property 13 6.51% 12% $ 3,000 92.1 1.09%
Property 14 6.43% 11% $ 2,388 93.3 1.07%
Property 15 6.36% 10% $ 2,376 94.3 1.06%
Property 16 6.23% 10% $ 2,748 96.4 1.04%
Property 17 6.13% 9% $ 2,337 57.1 1.75%
Property 18 6.00% 9% $ 3,408 100.0 1.00%
Property 19 5.87% 8% $ 1,998 57.8 1.73%
Property 20 5.63% 7% $ 7,326 106.5 0.94%
Property 21 5.60% 3% $ 840 107.1 0.93%
Property 22 5.20% 5% $ 2,700 115.3 0.87%
Property 23 5.13% 4% $ 1,356 117.1 0.85%
Property 24 5.09% 4% $ 1,308 117.9 0.85%
Property 25 5.08% 5% $ 1,200 118.1 0.85%
Property 26 4.97% 3% $ 1,128 120.7 0.83%
Property 27 4.62% 2% $ 600 129.9 0.77%
Originally posted by @Luke King :

Based on my original question in this thread, I've collected some more data to try and get a sense of the cap rates on multi-family properties in the West Toledo, Maumee & Sylvania.

I am surprised to see nothing above the 10% cap rate....and in fact very little over 9%.  The average for the 27 properties listed here is about 6.6%.  Does that surprise anyone here?  What do you look for in a cap rate for multi-family properties in these areas?

Property ID Capitalization Rate Cash on Cash Return (Traditional Financing) Annual Cash Flow GRM 1% Rule
Property 1 - Sold 9.97% 28% $ 9,204 66.6 1.50%
Property 2 9.01% 24% $ 5,640 66.6 1.50%
Property 3 7.96% 18% $ 7,176 75.3 1.33%
Property 4 7.89% 19% $ 3,528 76.0 1.32%
Property 5 7.81% 18% $ 3,660 76.8 1.30%
Property 6 7.77% 17% $ 2,952 77.2 1.30%
Property 7 7.58% 17% $ 3,360 79.1 1.26%
Property 8 7.51% 17% $ 3,360 79.9 1.25%
Property 9 7.51% 17% $ 3,360 79.9 1.25%
Property 10 7.17% 14% $ 2,586 83.6 1.20%
Property 11 6.75% 12% $ 4,404 88.9 1.13%
Property 12 6.52% 12% $ 2,688 92.0 1.09%
Property 13 6.51% 12% $ 3,000 92.1 1.09%
Property 14 6.43% 11% $ 2,388 93.3 1.07%
Property 15 6.36% 10% $ 2,376 94.3 1.06%
Property 16 6.23% 10% $ 2,748 96.4 1.04%
Property 17 6.13% 9% $ 2,337 57.1 1.75%
Property 18 6.00% 9% $ 3,408 100.0 1.00%
Property 19 5.87% 8% $ 1,998 57.8 1.73%
Property 20 5.63% 7% $ 7,326 106.5 0.94%
Property 21 5.60% 3% $ 840 107.1 0.93%
Property 22 5.20% 5% $ 2,700 115.3 0.87%
Property 23 5.13% 4% $ 1,356 117.1 0.85%
Property 24 5.09% 4% $ 1,308 117.9 0.85%
Property 25 5.08% 5% $ 1,200 118.1 0.85%
Property 26 4.97% 3% $ 1,128 120.7 0.83%
Property 27 4.62% 2% $ 600 129.9 0.77%

Hey Luke,

My best advice to you would be to focus on the team and people rather than what the stats and demographics show.

Statistics in one thing and real life is an other.

Folks like Ryan that have done hundreds of deals in the area can you give you better and more real life guidance than any online stat.

Just my opinion,

Much success

Regarding the Toledo city council announced in their last meeting Tuesday 8/2 that they will vote on the new lead base proposal on 8/16/2016.  There will be a town hall meeting on 8/8 on Jefferson street I'm not 100% sure of the address and time yet.

Originally posted by @Luke King :

  Can anyone help with their thoughts on what a reasonable cap rate might be for a duplex in West Toledo?

There are NO cap rates for duplexes. Where would you get accurate NOI calculations from? Stick with direct sales comparison or GRM.

I have read that cap rates on small multi-families aren't very useful....though I don't entirely understand why. My calculations above were based on the assumption that 50% of gross revenue would be spent on operating expenses, which means NOI would be 50%. That's how I estimated the cap rate. Thanks for the advice to use comps or GRM....there a few duplexes currently pending on that list....I'm anxious to see what they ultimately sell for.

Those are extremely enlightening links. Now I understand why when I calculated value based on different cap rates and estimated NOI, I was getting figures way below what properties are actually selling for. I was clearly using cap rates that aren't reflected in the local market. The conclusion is that cap rates for residential properties aren't very useful. Thanks Bob! back to the spreadsheets...