Cap Rate expectation

[Saleh Sedighi]

I'm looking into multiple markets for multifamily rentals . But I'm not sure how should I set my mini cap rate  while searching and filter properties. 

for example I'm looking into Oakland Ca, and Austin Tx. 

and average cap rate for prosperities in those markets are in totally different ranges 

Is there any way to say, for example above 5% is good for Oakland and not for Austin ?

or at minimum people should aim for above 10% and ignore the rest.

thanks  

[Dan Maciejewski]

Both of the above replies are spot on. 

When thinking Cap Rate in any area, the reward rises with the risk.  And average cap rates will be different in every market and with every asset class.  Small, medium, medium-large, and large multi-family will all have different rates of return in each market.  It's driven by what the local investors expect and accept in each market.

I'm not sure what you are asking.  It sounds like you are asking about searches based on cap rates.  If that's the case, do not use advertised cap rates for anything.  They will always be wrong.

If you are just asking if you are allowed to think that a 5% cap rate in Austin is fair, so 7% is a deal, while 8% in Oakland is fair and 11% is a deal, the answer is 100% yes!  

From my limited knowledge of both cities, I would expect less return in Austin, but I would be MUCH more likely to invest there.  My assumption is that there's less risk because it's an established tech city with growth in terms of jobs and population.