Cap rate how important is it to you and how do you use it?

[Dimitry Peters]

What cap rate do you look for when analysing a property? Do you stick by the same percent for each investment? Is there a "best" cap rate?

[John Warren]

@Dimitry Peters I am less concerned about what the cap rate is when I buy the property, and more concerned with what the cap rate will be when I am operating the property. Typically, I buy things that are value add so the cap rates are very low (3, 4 or 5 even). Once I take over, I get them operating at a 10 cap or even higher. 

In the Chicago burbs where I invest, it seems that the going cap rate for "stabilized" multifamily is anywhere from 4 cap in the A areas to 6-7 cap in the C areas. Even then, when you dig into the number a lot of the deals listed by local commercial brokers are actually probably negative cap rates.