Buying on actuals vs pro forma

[Barri Griffiths]

I've always heard and believed that you should only buy on actuals. But I've been hearing more and more of the experts buying at a low cap rate(5-5.5 and even lower)

Therefore I'm assuming they're buying on what the property can achieve in the future. 

There is a property that I've been looking at that have rents that are $100-125 below market.

 And I believe I could comfortably get $75 more per door without having to do any improvements.

A lot  of the tenants are month to month, so I could implement this pretty quickly.

How are these experts buying at such a low cap, and still giving their investor a good rate of return?

And is it unreasonable for me to buy on what I believe I can get the NOI to pretty quickly?

[Andrew Johnson]

Barri Griffiths It's hard to know motivations for investors. You have to balance cap-rate against location. A 5.5 cap in San Francisco is insanely good. A 5.5 cap in urban Memphis is likely insanely bad. So you *might* be seeing investors taking appreciation gains from SF/NYC/etc. and putting them into *less hot* (but still good) markets. There's also an argument that money is still cheap and interest rates will rise. In short, there are a ton of potential reasons. And we are nearly 10 years into a housing recovery, you can't expect cap rates to stay idle during a decade long appreciation market. Banks are also becoming a little more lenient than 5 years ago so that helps market competition. People that walked-away or short-sold their home 7 years ago have had 7 years to rebuild their credit. Again, increasing competition. But now I'm rambling...

And banks still pay squat in for a checking/money market account and very few people want to lock their money up in bonds... 🤷🏻‍♂️🤷‍♂️