As a general Discussion, What do you consider to be a realistic expectation for Cap Rate in the area? Or if you use a different ROI calculation what is it and what rate do you expect to get? I see a lot of 6-7% out there that seems low to me.

Originally posted by @Ric Mittleider :

As a general Discussion, What do you consider to be a realistic expectation for Cap Rate in the area? Or if you use a different ROI calculation what is it and what rate do you expect to get? I see a lot of 6-7% out there that seems low to me.

 That's the norm in Tacoma these days. 

By the way, I recall getting a few of your letters.

Adrian,

Yes I have recently started marketing for properties and buyers in the area. we are relocating from San Diego back home. I have a lot of property owners willing to sell but I didn't feel that I could wholesale them because the return would be so low.

@Ric Mittleider We're seeing between 7-9.5% here in Ohio in the A-/B/C+ class areas. It dips down into that 6-7% range for A/A+ class.

Bryan,

Yes I invest in Nebraska as well and am getting good returns there as well. I have been trying to figure out the expected returns in these more expensive areas. Plus hoping to find some investors that are still investing in these areas.

@Ric Mittleider I am seeing 9-11%. I invest in Hastings, Nebraska - a small college town. I have been very selective in my purchases and done some forced appreciation so the norm may be a little lower. I would say my properties are C-C+ that are B’s when I am done.

Are all these numbers you guys are running counting tax adjusted? 

One thing we're seeing in Columbus OH is that brokers aren't selling anything tax adjusted. 

This can make a big difference when running numbers. As the county auditor will see the new sale price.

This may be even more of an issue here because of how hot the RE market is.

For example:

I bought a double last year for 175k. The seller purchased it for 54k in 2016. Big return in 3 years, as it was in similar condition.

My taxes are on that 54k value so I am expecting my taxes to also go up 300%... this changes the cap rate quite a bit. 

Just curious if other cities are seeing the same thing or other auditors work similarly. 

Thanks!

yes I calculate on total net rental.  So minus taxes, insurance maintenance and management. just don't add any financing costs.

@Austin Steed The way you mention it isn't how our county works (or any local area down here). There are base rates just for owning a home, but value doubling doesn't double actual tax. As an example, sold a home over 18 months ago to a client for $105K. Tax base rate is still $40K today!

Even if there is an increase at their 3yr review period, it's almost NEVER to the last sales price as those can be artificial in dozens of ways. One huge way is if you buy a package of properties, the sales price will record against the ENTIRE book of properties, e.g., 5 properties at $100K each equals a $500K sale and that will show up on each of the 5 properties. Thus, they do not use that, they use their own internal metrics and methods, a drive by appraisal every 3 yrs which means they don't know interior condition (good or bad), so they grade it based on average comps in the area which include distressed sales, etc.

Just how our local areas work :)

As crazy as it sounds, 6-7% CAP in the greater puget sound is actually quite good. Seattle averages in the low 5%s and tacoma in the low 6%s or high 5%s.

That's the current CAP of course, so for those properties (or any property) most investors would be looking to add value and increase returns after purchasing.