What is the cap rate target for a duplex rental ?

Question

To current and previous multi family real estate investors, what was your target cap rate when evaluating a possible investment property? I am aiming between 8-10% but would love some feedback !

Dan Biber · Answer

For a larger multi-family deal, I forecast the exit (reversion cap rates) only. Since we typically acquire value-add multi-family assets, going-in cap rates don't mean anything. The better financial return metrics would be cash-on-cash, IRR, equity multiple. What the financial return metrics to focus on is really based on what your goals are. Short term hold, long term hold, only your equity, other investors in the deal, etc.

For smaller multi-family deals, I mainly focus on cash-on-cash returns. Anything over 15% cash-on-cash, I'm satisfied with.

Thanks,

Dan Biber

For smaller multi-family deals, I mainly focus on cash-on-cash returns.  Anything over 15% cash-on-cash, I'm satisfied with.

Thanks,

Dan Biber

Bryan Mitchell · Answer

@Dan Biber, I appreciate how you expanded upon your answer. I always used cash on cash return as one of my go-to metrics because it allows you to compare against various properties. It helped me to determine my cash flow. While I haven’t used IRR, it good as long as you can make reasonably accurate assumptions about future events. Thanks for adding to the discussion.

Bryan Mitchell · Answer

@Ernesto Carozza, for smaller older MF, I’m looking for over 12%, but for newer and good to great condition, no less than 8%.

What is the cap rate target for a duplex rental ?

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