All Forum Posts by: Mike Douglas

@Alex Olson, That helps a lot. Thank you for the response. As others have mentioned, I shouldn’t have stopped at Cap Rate or even put importance on it without considering a few other factors. Not to mention getting an accurate estimate on what long term major repairs I’d expect on the older property. What you said makes a lot of sense and I realize I have more work to do. Thanks again. 

@Dave Foster, I appreciate your response. It's a good suggestion to not stop at CR when analyzing the two properties. When running the Newer Home/Less Maintenance=lower CR scenario through a IRR calculator the numbers are clearer. Estimating future major repairs and current minor maintenance to the old home is complicated but necessary to get an accurate comparison. Thanks again.

I own a single family home in the Old Town area of Fort Collins, CO that I have a 5.9% Cap Rate on. Currently rented to good tenants. The home was built in 1904. Although the bones are in good condition, there is the potential of expensive cosmetic updates in the future, like concrete work, etc. not to mention more frequent minor repairs than newer homes require and potential of future major expenses like sewer lines, foundation, etc. I also happen to own and rent a SFH in the suburbs with a 7% Cap Rate. Because of the age and upkeep of the older home, I'm considering selling it and 1031 exchanging into a newer suburban home. The thing I can't get past is, the Cap Rate on a newer, less repair-risk suburban home would be around 4%. My question is: Does it make any sense at all to drop 2% cap rate points to swap an older home in need of repairs for a newer home with fewer issues?  Or does it make better sense to stay with a higher Cap Rate property and deal with repairs big or small as they happen?