Low cap rate... why bother?

[Chirag Parikh]

Hi All!

I've been browsing loopnet and other websites recently to get a general idea of what kind of multifamily investments are out there. I noticed that in some places (los angeles for example) have multifamily apartments for sale with VERY low cap rates (2-3%) and I was curious to know if there is any advantage at all to these? I have read that low cap rates usually indicate a lower risk and possibly higher quality tenants. 

ROI would be poor regardless though wouldn't it? Do low cap rate investments make sense if the volume (# of units) is high? I'm curious to know if anyone has any thoughts on this. Why would anyone bother to advertise apartment complexes for sale with such low cap rates?

[Account Closed]

Originally posted by @Chirag Parikh:

Hi All!

  I noticed that in some places (los angeles for example) have multifamily apartments for sale with VERY low cap rates (2-3%) and I was curious to know if there is any advantage at all to these?  

  Why would anyone bother to advertise apartment complexes for sale with such low cap rates? 

All a cap rate tells you is what the market is paying for a NOI today. Smart investors look for the numbers tomorrow and further. If they anticipate strong future rent growth and appreciation they will move to LOCK in expenses today such as financing and property taxes.