North eastern Ohio cap rates?

Question

I am wondering if anyone can give me some insight into cap rates on larger buildings in different areas around north eastern Ohio.  I am looking for larger buildings, 12 plus units, and am trying to grasp the different cap rates in A, B and C neighborhoods.  I know there are slightly lower cap rates in more desirable areas but how big is this gap?  When looking at Lakewood vs Wadsworth or Medina.  I would love to hear from someone who has experience with larger properties in these kind of areas and what cap rates I should be using when evaluating deals.  Thanks

James Wise · Answer

What we have in inventory here is a large amount of duplexes, then we have some brick 6 units. There are not too many 4 or 7 units but some 4 unit buildings do exist. We have 20 or so currently operating in the Holton-Wise portfolio. (No they are not for sale.)

If we are looking at buying a 4 unit it would be in my opinion a CRIME to buy it with cash. The true value in a 4 unit is that it's the largest building that will qualify for a traditional 30 year residential mortgage. That is the #1 reason one should buy one of those. You will not find anything like this that is higher than a 7 CAP in a B-Class or higher neighborhood. Again, you should not be looking at just CAP though. You should be looking at the best way to utilize your existing funds and leverage against those of the bank.

Then we have the 6 units. CAP becomes more important. Financing options are now less attractive in that you will not be getting 20, 25 or 30 year loans. More likely you will have loans with a 5 or 10 year call. However, the good news is that unlike traditional 30 year mortgages there is no limit to what you can borrow. So long as you have your down payment funds and the building is hitting a DSCR of 1.2 the amount of money you can borrow is limitless. 7-8 in C-Class. Less in B-Class.

James Wise · Answer

The #1 issue is lack of inventory. If your looking for 12+ resi buildings in quality neighborhoods they are few and far between. Expect to see 7 or less as their is so much demand anytime one hits the market.

Jorge P. · Answer

Great info James , sounds like you know your market. Thanks for sharing @James Wise

Joseph Todd · Answer

James, what do cap rates look like for smaller, let's say 4-7 unit, properties in quality neighborhoods? Any better than 7%? Considering a ballpark of typical expenses, what sort of return can you actually expect to see as a cash investor currently?

Phil Morgan · Answer

Thanks James, this is exactly the information I was looking for.

North eastern Ohio cap rates?

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