How Important is Cap Rate in the equation

[Spencer Joseph]

Hi BP community, 

I am new to the BP forums but have been an active listener to the podcasts for a while. Have been spending the last few months sharpening my knowledge and skills to best arm myself for when I pull the trigger on a property. My goal is to build long term equity by buying and holding. I have been running a ton of cap rates and can not seem to find anything above 6% in the areas I am most interested in. My question is how important is a good cap rate in the grand scheme of things? Should I hold as much water in Cap rate as I have been doing lately or am I giving it too much credit? Lastly, what other factors should I also look into that can determine if the property is a good investment.

Really appreciate your insight and thank you in advance

Sidenote: Would love to connect with some local CT BP members if you want to connect

-Spencer 

[Russell Brazil]

Originally posted by @Spencer Joseph:

My question is how important is a good cap rate in the grand scheme of things?

 There is no such thing as a good cap rate or a bad cap rate.  Cap rate has much more to do with the underlying risk of the asset and market, and really has very little to do with return. (There is no such thing as a good or bad return either).  The higher the cap rate, the higher the risk of the asset/market, and the lower the cap rate the lower the risk.