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Updated about 4 years ago on . Most recent reply

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Sean Keegan
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Cap Rates for Off Market Deals

Sean Keegan
Posted

I am working to get my first deal (hoping for a BRRRR) and I am a little confused by the cap rates my wholesalers are sending me. Can someone kinda break it down for me? Much appreciated!

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Alvin Sylvain
  • Los Angeles
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Alvin Sylvain
  • Los Angeles
Replied
Originally posted by @Sean Keegan:

Ok thank you. So basically the cap rate is way for me to see the potential future value? So based on your example, the lower the cap the better

Define "better".

The higher Cap Rate will generally mean a larger profit, at least on paper. "ProForma" as @Steve Morris mentioned.
But the lower Cap Rate will generally mean nicer areas and less trouble with tenants.

You want a 15% Cap Rate where you have to hunt down your tenants for rent every week? And not always get it?
Or a 4% Cap Rate where everybody is wonderful and cooperative while you lose money every month?

Bottom Line, Cap Rate can be used for comparisons, but that's about all. You still need to check other metrics, like ROI, IRR and Cash Flow.

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