Single family portfolio cap rate. Yes or no?

[Marco Anemone]

I know cap rates are not used to determine a value for single family houses. But is it appropriate to use, commonly used, or used at all for portfolios of single family houses? If it is used, would the cap rate be comparable to multi family buildings in the same are or more so based on other factors?

[Greg Scott]

I don't see how the Cap Rate metric provides any value in single family.   Cash-on-cash or Equity Capture are much more important metrics.  Those are the metrics you would use to make a decision.  Cap Rate adds no additional information that would influence a purchase decision above those two metrics.

Cap Rate is useful in the commercial space because it gives you a sense of price relative to the income.  However, even then it only provides you a simplistic metric that must be combined with other metrics for decision making.  For example, if I can see a way to increase income substantially, I"m happy to pay a very low Cap Rate.  If I know property taxes are going to pop after the property is purchased, I might not be willing to buy a property, even with a very large Cap Rate.

If you live in Los Angeles, does it influence your decision on what to wear that day if you know it is going to rain in New York?