What's a good cap rate

[Craig H.]

Sorry, I asked the wrong question. I meant to say What is a good cap rate? How do you determine what CAP rate you should strive for?

Thanks!

[Michael Rossi]

My advice is FORGET THE CAP RATE! Cap rate is primarily a term used by investors who are trying to take advantage of ignorant newbies or who are trying to sound important. You can't eat cap rate, internal rate of return, or any of the other gibberish the so-called sophistocated investors talk about.

Furthermore, you'll often hear real estate agents and other sellers hype the cap rate because there's NOTHING good about the property. For example, in an over-priced market in a socialist area, a real estate agent might tell you that a property has a great cap rate and elaborate that the market cap rate is 5.0 and the property he's selling has a cap rate of 5.5! Good deal? NO!!! You're still going to lose a huge pile of money on this deal! Additionally, the entire market cap rate is another joke BECAUSE IT DOESN'T EXIST!

The ONLY thing that matters in business is MAKING MONEY! My advice is to do a cash flow analysis and determine if the property will make the desired amount of money. If you want to go one step farther, calculate your cash on cash return on the property. That is useful information.

FORGET THE CAP RATE!