Expectations for Financial Measures and Investment Returns in MFR

[Benion Horton]

Hello,

While we have been owners of commercial real estate for 7-8 years, we are now looking at expanding our horizons and seeking to buy and hold smaller multi-family units (2-5). An excerpt from our (in progress) business plan is included below:

• 20% cash down
• Capitalization Rate of 8-10%
• Cash on Cash Return of 11%
• Total Return on Investment of 15%

I have been unsuccessful in finding any real good solid guidance on expectations/goals for the above parameters and also IRR rates. From what I have read, if we can get these parameters to be better than historical stock market returns, then we would be coming out ahead from an investment standpoint, thus the parameters that we established above.

From my limited searches on Realtor.com thus far, there are a few properties that could meet the defined criteria above, but have found that the Cap Rate is probably the hardest one to hit. If all the other parameters are met, does a lower Cap Rate affect my overall investment performance?

Are there any additional parameters that I should include in screening properties, and if so, what rates should I seek?