CAP Rate Question?

5 Replies

Hello All,

I am a new member that has minimal experience with single family homes.  I've got 2 rental properties that I've owned for many years.  I intend to move towards multifamily units and increase my portfolio.  At present I am "practicing" evaluating properties to buy.  

I had found this (see link below) near a condo I own. From what I understand CAP Rate = NOI/Cost Basis.

The price is $1,700,000.00 for a 28 unit property and they are advertising a CAP Rate of 7.46%.

http://www.loopnet.com/xNet/MainSite/Listing/Profi...

That is 1,700,000.00  x  0.0746  =  $126,820.00  (Gross)

$126,820.00  /  28 Units  =  $4,529.00  (Gross)

Am I calculating that correctly? They have 24 x 1 Bedroom Apts @ 700 sq/ft and 4 x 2 Bedroom Apts @ 1,100 sq/ft. There is no way they are getting and average of $4,529.00 per unit for these apartments. Am I missing something...or is the CAP Rate being advertised grossly overstated?

Thx for your input!

Best Regards,

Kevin

The ad says the have 24 units @575 and 4 @675 = 198k gross. 

They have 71,180 expense for a NOI of 126,820.

126,820/1,700,000 = .0746 which is your cap rate. 

Originally posted by @Marc Andrew :

 . 

126,820/1,700,000 = .0746 which is your cap rate.

Which means absolutely nothing unless you have cap rate comps from comparable sold properties. And know how to analyze the NOI of the comps and the property you are thinking of buying.