5 CAP?

[Melissa N.]

We are looking at a 10 unit building in a class A, very upscale area near a growing city. The place has a lot of work to be done (roof, parking lot pave, updating, etc).

After fixing it up we are debating what a reasonable cap rate would be. What do you think the lowest 'acceptable' cap rate is?

This would be our first multifamily and I'm having some analysis paralysis.

Thanks!

Melissa

[Jeff B.]

Originally posted by @Melissa N.:

We are looking at a 10 unit building in a class A, very upscale area near a growing city. The place has a lot of work to be done (roof, parking lot pave, updating, etc).

After fixing it up we are debating what a reasonable cap rate would be. What do you think the lowest 'acceptable' cap rate is?

 Don't get excited when I say this, BUT you can't calculate ANY cap from this information.

The Cap Rate is the NOI / Purchase price (what you sell it for).

The NOI comes from the Gross Scheduled Income -less- the Operational Expenses (both being annualized numbers)

The GSI should be the FMR for the unit configuration (2/1, 3/2) x 10 units x 12 months and you can get pretty close on that.

Operational Expenses is another matter.

You're into flip-rehab so the operational side may not be so obvious to you. 

IMO, at this stage, fixup to get a good ARV(after repair value) but leaving a good margin for you from the purchase + fixup expenses.

If you then want to transition into Buy&Hold, you can develop the operational side.