Sacramento Cap Rates

[Kyle Murphy]

Hi everyone,

I’m considering investing in Sacramento and I wanted to see what cap rates investors are experiencing on Class B small commercial apartment buildings (5-10 units). I know there has been quite a bit of cap rate compression over the last 12 months, so I’d love to hear from anyone who has recently purchased a property to see what they getting. If you could specify the general area in which you invest that would be great.

Thanks!

[Brian Serina]

Originally posted by @Kyle Murphy:

@Brian Serina Brian thanks for your response. Deferred maintenance and below market rents, among other things can abosolutely distort cap rates. Have you seen any best practices for estimating capex for a building?     

We always first start out with our own analysis. Get out and take a look, a real close one.   Look at the roof from a distance.  Use your broket, get his opinion.  If the owner's broker is there, ask him.  Pay attention to their responses.   We went out to a 14 unit MF and with binoculars from across the street you could tell it was in bad shape.   I told the client to save his money on getting a roof inspection done.  Rather, call a roofing company and ask them cost to completely replace, not repair, the roof, and budget for it.  And use their high number.   If the a/c units seem old, you will be replacing them, for sure.  Go to costco and see what a unit costs.  In our situation we called a licensed handyman his cost to switch out and install 14 of them.

And if your offer is accepted, get a property condition assessment so you can fine tune your costs.   Many units had water stains around the tubs and sinks.  Call your gc and ask him cost to gut and completely redo a bathroom X 14.  Note, we were shown a couple of cleaned up vacant units, i think they were more like models to get us to think all of the other ones were like those.  Clearly they were not.