Deal analysis, 2-4 unit vs small mu cap rates in Washington State

[Jonathan Gordon]

Hi BP,

I live in the Silverdale-Bremeton area west of Seattle, and I just want to make sure my numbers are right when I do deal analysis.

When I run cap rates on 2-4 units selling in my area, they usually end up at around 4-5% assuming market rents in place (many are not even close). I factor close to 24% for maint, capex, and professional management.

When I do the same for small multifamily for sale or sold in the area (5-16 units), I get closer to 5-6% again with market rents that are far above current rents.

To get conventional financing, I am having to put down 35%+ to qualify with a small upside of at most 1% and next to no cashflow. Im betting everything on rent growth and appreciation. 

Am I missing anything? I am looking solely at the MLS and nothing that needs major repair or is a slumlord tier property.

It almost seems more convenient to buy a duplex or a pair of condos all cash but I know that limits my upside long term. 

~Jonathan

[Sherief Elbassuoni]

@Jonathan Gordon, you are not missing anything. We see the Cap rate numbers all the time. cap rate for 2-4 units are many times lower than 5+ units because the demand is higher