New Investor from Pgh - Can Cap Rates be Distorted?

[Amy Salera]

Hi everyone -

I'm a new investor from Pittsburgh. I've been reading BP for quite some time, and am finally ready to take the plunge and purchase my first property. However, I'm having a hard time understanding cap rates. I understand what it is and how to calculate it, but it just seems like the number could very easily be distorted depending on what percentages you're taking out for vacancy, repairs and maintenance, etc. When using the BP Rental Property Calculator to evaluate potential deals, I know that I'm being conservative with my numbers (because I really don't want to mess up my first deal!), but all of the cap rates that I'm finding seem to be about 3% or 4%. When evaluating cap rates I'm taking out taxes, insurance, 8% vacancy, 10% repairs, 8% cap ex, and 10% property management fees; however, if I lower all of those percentages then my cap rate is higher - is everyone using lower percentages and that's how they're finding cap rates of 10%, or am I truly looking at a lot of overpriced MLS properties?

Thanks in advance for your help!