Capitalization Rate, How often do you.....

[Mike McKinzie]

With a lot of changes in our personal life, I have had to re-visit all of our investments. There is no doubt that well purchased and well managed rental properties, whether a SFR, a small multi-family, a large multi-family, commercial, retail or even land, can bring a nice income and build wealth. But one of the toughest questions that I am facing, and I wonder if anyone else faces it, is WHEN to abandon (sell) an asset and redeploy that capital? Therefore, my first question to you seasoned investors is, 'How often do you figure the Cap Rate on the properties you own?' A $50,000 property that you bought in 2009 that rents for $750 is very different if that property is worth $150,000 today and rents for $900 a month. I just added an Excel Spreadsheet column to give me my current Cap Rate and was shocked. Most of my properties are returning a less than 5% Cap Rate. We just deployed some capital into an Apartment Syndication that is returning 8% from year one, and more after that. And while appreciation is nice, it doesn't buy the month's groceries. So my second question is this, "When/How do you decide to sell an asset?" If an SFR is a 15% cap rate at purchase but is at a 4% cap rate today, is it a candidate for selling? Obviously, if you are an 'Appreciation Investor', the Cap Rate is not as important. But if you are a "Cash Flow" investor, the Cap Rate is vital. I would love to hear many opinions!

[Bobby Stener]

I have some terrible roe in some of my places but I just consider it $ in the bank as they are safe A class properties in the Bay Area. Some commercial on the freeway with signage rights, plexes near desirable downtown cores, etc... Could I 1031 into better cash flowing areas in Cleveland or Indianapolis sure but that would be going from the penthouse to the outhouse and my money wouldn’t be nearly as safe. So, you need to consider the quality of the asset in your calculations as well as the cap rate.