small markets and smaller buildings seem to cashflow better...true??

[Joe Smith]

From the research I've done, it seems there is a frenzy in the "big" markets like LA, NYC, etc that has pushed cap rates on fancy Class A buildings to ridiculously low levels, while the "secondary" and "tertiary" markets have far better deals out there if you really want to make cashflow.

This seems odd to me. Why is there this frenzy in the big cities, when, as soon as rates go up, all these 4.5% cap rates will suddenly be in a situation where either the investor has to sell at fire-sale prices, or, rents would have to increase considerably?

To me (someone who has only invested in SFR and Duplexes so far) this seems like a warning siren to stay away from the big markets.

I don't see rents increasing at a rate that will make these big city buildings profitable down the road, unless these new buyers take a bath on them at some point...am I right??

It seems to me that you make more dough cashflow wise on 5 $850k 20 unit Class B or C buildings in Akron, Ohio than on one 10 million dollar Class A in New York (if such a thing even existed at that price).

[Joel Owens]

Joe you are not understanding a key point.

Investors such as yourself DO NOT typically invest in Class A properties for the reasons stated.The cash flow returns you want are not there.

Larger buildings that are Class A with Multifamily mainly comprise institutional buyers,pension funds,REIT's,Insurance companies.

What those companies want to do is have security OVER cash yield.So if the CAP is 4.5% going in they can eventually increase the cap through rent increases that are outpacing annual inflation rises.

Through increased rents,tax offsets yield can be increased.No it's not going to be 10% etc. but all these companies are trying to to is protect the money,grow it a little,and outpace annual inflation.

Hope you understand now why this is not a target for everyday investors.Many investors look for 20-150 units value add class B or C they can turn around instead.