Cap Rate on a Duplex in Toledo OH?

Question

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 King · Answer

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%

Luke King · Answer

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...

Account Closed · Answer

This should help.

https://www.biggerpockets.com/forums/88/topics/339...

https://www.biggerpockets.com/forums/88/topics/320...

Luke King · Answer

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.

Account Closed · Answer

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

Adam A. · Answer

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.

Engelo Rumora · Answer

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

Ryan Pyle · Answer

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...

Ryan Pyle · Answer

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.

Engelo Rumora · Answer

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