Cap Rates for Off Market Deals
I am working to get my first deal (hoping for a BRRRR) and I am a little confused by the cap rates my wholesalers are sending me. Can someone kinda break it down for me? Much appreciated!
Most Popular Reply
Define "better".
The higher Cap Rate will generally mean a larger profit, at least on paper. "ProForma" as @Steve Morris mentioned.
But the lower Cap Rate will generally mean nicer areas and less trouble with tenants.
You want a 15% Cap Rate where you have to hunt down your tenants for rent every week? And not always get it?
Or a 4% Cap Rate where everybody is wonderful and cooperative while you lose money every month?
Bottom Line, Cap Rate can be used for comparisons, but that's about all. You still need to check other metrics, like ROI, IRR and Cash Flow.