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Updated about 3 years ago,
multi family exit cap rates
It is becoming more popular to underwrite deal and calculate the terminal cap rate by taking the current market cap rate and add .1% for every year it is held to make deals work. For example, if the market cap is 5.5% and you plan to hold the property for 5 years then the exit cap would be 6%. My question is under that model what would you do if we go into a downturn and cap rates decompresses by more than the .5% projected or if the cap rates decompressed by .5% before the 5 years are up?