Thoughts on high cap rate multi family

[Jeff Ostreim]

I am going to be looking at a couple of multi family properties a few hours from where I live. One is an 18 unit multi family with a mix of studios, one bedrooms and one 2 bedroom. Asking price is $650k and at about an 8 cap. It’s been on the market for 7 months. I’m thinking it should be a 9 cap and needs a new roof.

The second property is a 54 unit with some vacant retail space on the ground floor The 54 units are made up of studios and one bedrooms. Asking price is $1.8M and a 10 cap. It’s been listed for one month and the guy selling is a commercial broker and has owned the property for 15 years. Says he is selling because he is changing his focus to other properties.

What are your thoughts on areas with higher cap rates? Any particulars I should be thinking about when I go to these towns? 9 and 10 caps look great in a strong rental market like we are having now...

[Geordy Rostad]

@Jeff Ostreim

My first thoughts are "What numbers did he omit from the expenses to boost his cap rate so high?"

If he's self-managing that 54u, for instance, then no wonder he needs to sell to change focus.

Make sure he's given you a DETAILED expense breakdown including his turnover costs, rental marking costs, maintenance costs, capex, management, etc, etc. Adding in all that stuff can take your cap from 9 to 5 pretty quick.