Cap Rate(s) in the St. Louis and Metro area

[Tim Walsh]

I'm just getting started and trying to figure out if St. Louis has as an average Cap Rate. Since the  greater STL and metro areas are so diverse, do certain areas have different rates such as West County, South County, North County, St. Louis City, etc?

Many thanks for any input! 

[Mackal Smith]

Tim, I think you'll find that they are all over the board. @Mike Delprete is right in that most of the time you will definitely find lower cap rates in better areas and higher cap rates in more challenged areas, but there are so many small enclaves in terms of communities within St Louis it's really hard to try to come up with an "average CAP rate".

All my properties are in South City and even there, from one neighborhood to the next you can see caps rates anywhere from 7% to 25%. I think the best advice I could offer would be for you to do some driving around and lots of looking at properties. Find an area that you feel can give you a return you will be happy with then farm that area.

My properties are all in decent blue collar areas in South City (mainly Dutchtown) and overall give me about an 18% Cap Rate. That's deceiving though because it doesn't include CAPEX and these properties are all between 60 and 120 years old. It also doesn't include losses (I lost a condenser unit to theft on one of the properties last year and then made sure that I replaced not only that unit, but cages around the others in my little portfolio that didn't have them). I think Cap Rates should be used as maybe an overall indicator, but don't buy a property based on cap rate alone (and don't let low or high cap rates include or preclude a neighborhood from your evaluation)