CAP rate in the area

[Brad E.]

Hey guys. I'm looking at a multi family property here in Athens and am trying to calculate an offer price. There seems to be much online debate on the value of looking at the Cap rate when making a purchase decision. I'm not trying to get into a debate here.

What I am hoping is that someone can share what a decent Cap rate is for this area. I've talked to several agents, about this and other properties, and none seem to be able to tell me what an average/good Cap rate is for the area.

Can anyone here speak to this? Or share with me a good source to find it?

My thought is that an experienced agent/broker would know, so I'm guessing I just haven't found the right person yet.

Any light someone can shed on this will be greatly appreciated.

[Immanuel Sibero]

@Brad E.

You're correct that cap rate is used not only in multifamily investments. It's but one valuation metric for anything that can throw out Net Operating Income. For example, a financial advisory firm (i.e. a business that's drastically different from an apartment complex) can be valued using cap rate.

However, with respect to investments in residential SFH, duplexes, triplexes and quadplexes (i.e. up to 4 unit) cap rate simply has little relevance, particularly when it comes to valuation. Within this space, if you are determined to use cap rates, you could use them to compare potential investments in 1 to 4 unit properties to determine which is likely to perform better (i.e. use cap rate as a performance metric), but even then cap rate is such a poor measure of overall performance of an investment. There are far better performance metrics.

I suggest doing a "cap rate" search on BP to get further insights on cap rate, it's a lively debate and very informational. I learned a lot from it.

Cheers and good luck on your deal... Immanuel