CAP Rate % Vs. Payback Period (PBP)

[Joshua Vall]

Here is my question. I am reviewing at least two dozen multi-family units per week. I have a few realtors that are throwing a lot of garbage at me and I am trying to weed through the mess. Some of them are incorrect in their data and I am posting here to get a sanity check.

1. The higher the CAP Rate %, the more attractive the deal. Correct? I use the CAP RATE % to calculate the PBP. I generally do not look at deals that have a PBP above 8.5 years and a CAP Rate below 9%. Some of the agents that are posting properties, seem to be over-zelous about a 7% CAP. To me, that is not too good. Am I missing something here?

2. I am looking at 4+ unit buildings and want to know what you all think a comfortable +cashflow is. Generally, I am seeing potential deals with $800-$1,200 / Month positive cahsflow for a 4-8 unit property. To me, that seems worth the headaches. Do you concur? Or, am I cheating myself.

3. I have created very impressive tools to cover the complete income and expense numbers for potential properties. I factor all of the maintenance, vacancy, taxes, operating budget, etc. Are there other formulas that I should be looking at, besides cashflow, CAP Rate, PBP, and APY? I also do a 10 year appreciation snapshot, factoring loan paydown, inflation, appreciation, etc.

4. The most famous question... HOw do I really know that I am gettign a good deal?