Cap Rate Comps and True Value

[Chris Yeakel]

Hi all,

When purchasing a commercial multifamily, should one use cap rate to determine the “value of the purchase”, the potential value of the property, or both?

For example; if I have a property selling at a low 6% cap rate, should I have the mindset of “This is buying at a premium, I need to buy at a higher cap” or the mindset of “this is at a 6% cap and I think I can get it to 10%”?

Ultimately purchase value vs future value

Thanks for any clarity!

-Chris Yeakel