I have my eye on at a 6 unit property in my smaller town of 30k people. How do I estabish a good CAP rate for an area when no similar properties have sold recently?
Should I just make the numbers fit what works for me?
The RAW definition is the property NOI / PP ( purchase price).
Change your focus to a stock market index fund for the moment and ask,
- "What is the YE return?"
Do you control that number? Naa, you either accept or move your funds. With REI, the Caprate ~= the ye index return for your chosen investment.
The numbers (NOI, PP) indicate that your PP is buying an NOI. I think that cash/cash (NOI / DP [down payment]) is more accurate of MY investment in cash.
I would just make sure the numbers make sense for you. Is there enough cash flow after expenses to make it worth it. Just my 2 cents.
As I am new to the commercial market I understand there are certainly known unknowns for me in this new market. I know I am purchasing a new class C revenue stream. I also know and have a number in mind that that makes managing it worth the investment. The problem lies in that the stated price from the broker and the pp I have in mind are a ways off. I feel I need something to back up my need to lower the advertised PP by 15-20%
Commercial Props do not use comps - - but what the heck, find a few and if they push in the right direction, WHINE. Ask
- "Just how long will you sit on the market w/o offers or the ability to close. The bigger the DOM number gets will tell everyone your price is out of wack".
@ J Beard I appreciate your insight in the past few days. This particular property has been on the market for a year and the stated price has stayed the same so I know their price is likely off.
So I have an opinion, keep it simple, the units have been on the market for a year. Everyone and there brother has been through it, the big players and small alike. It sounds like the owners are just fishing for the a once in a lifetime buyer at an inflated price. They are cash flowing nicely and so the motivation is not there. Go find something that you can work with and will work with you. That's what I'm going to do.