How do I determine the going market cap rate?

[Dovid Staples]

Hello BP! I have a question that I'm sure is as newby as it gets. I found a six plex in n the Phoenix az metro area, called the owners, had the current income and expenses emailed to me and began to do the numbers to determine the value of the property. My preferred method I think is using ROI and cap rate, but I can't figure out the cap rate I should use to determine that. The cap rate for THIS property at their asking price is 5.3. The cap rates of other properties currently for sale in the area seem to average about 7.1, but I don't know where to find data on SOLD multi-family properties online more recent than 2014 or how to narrow down the data to the parameters of the property I'm looking at. Your guidance is appreciated!

[Jeff B.]

Walking slowly here. CAP rate has two variables: The NOI and the Purchase Price and calc's as

• NOI / Purchase Price

So a) there's no such think as a market cap rate. The rate b) is specific to YOUR NOI and YOUR Purchase Price. Low NOI (meaning rents below FMR or high expenses) or an inflated PP will create a Caprate like what you are seeing. Alter either one and your projections change.

Investigate the market FMR and compare to you rents for each door of the 6-plex. If yours is too low, can you compete at FRM? If so, then that improves your projected CAP.

On the other side of the math, how does your price / unit compare with those around you?  Too high, then lower your offer.