Why are the cap rates in mid-western cities so high?

[Aaron McMahon]

I've been looking for multifamily units in mid-western cities like St. Louis, Cincinnati, Dayton and Louisville. I've noticed that in some cities like Dayton, the cap rate for smaller MF properties is around 10 to 12%.  What's the reason for that?  Should I be suspicious or excited?

I'm looking for MF properties from 4-plexes up to about 20 or 25 units, so maybe it's just the smaller properties that have high cap rates.  The prices seem very low, too, and I'm not sure why. Example: a 4-plex for $79,000 with a cap rate of 13%. The pictures of the units look fine and it's not a dump.

Anybody know anything about these markets and can you explain what's going on?  Thank you!

[Jake Walroth]

I live/invest in Cincinnati/my brother invests/lives in Louisville. Both of these are great markets for investing. As for the cap rates... if you're just using Loopnet... not sure these can be trusted... at least from my observations. You can find those cap rates.... not sure I'd invest in those areas, but they're definitely out there. Having lived in the Bay Area, I can tell you these are very different markets. It's much more broken up, street by street, etc. While pictures may look good.... you really need someone on the ground or to come out and visit to see if the neighborhood/tenant base is somewhere you'd be comfortable investing in. Also, many of those sellers know people like you from SF, LA, NYC, etc are jumping for joy when you see that 13% cap rate..... so just be careful and make sure to perform extreme due diligence.