Hey guys! I'm new to BiggerPockets and had a couple of questions. My father currently has some buy and hold properties in the New York City area. I have been following him with his real estate work for a while, and have become skeptical on one of his buildings.
I have been arguing with him to raise the rent on one of his buildings. It is a 3 family. When he bought the building, it was worth 550k. His return on investment (after mortgage), with the rent rates at the time, was around 9%. The property has since doubled in value, and his return on investment is now only around 5%.
My question is, should a cap rate remain the same when a property's value goes up? Should he still be making a 9% ROI? Thanks in advance! :)
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I'm not sure which area in NYC you are talking about, but in Brooklyn most properties that was sold at a 10% cap 10 years ago are being sold now for 5-3% cap. In my area there's almost no cash flow it's just a appreciation play. It doesn't mean that you can't increase the rent, but cap rate is not the reason for an increase in rents. The best way to figure out the rents in your area would be checking on Craigslist and Zillow how much people are asking in your area.
@Alex Puleio In addition to what Chaim said, you can punch in the address on rentometer - generally somewhat accurate.
@Alex Puleio Since he already owns the property, I would worry less about ROI, and more on what the market will support. In addition to rentometer and Craigslist, check out StreetEasy.com, a listings site specifically for New York, and see what comparable buildings are renting for in his area.