Advice on cap rates in BC

[Marco L.]

Llooking for advice on cap rates in bc. I'm on the look out for a multifamily apartment building smaller size 12-20 units and I'm finding some deals in the valley in the 3.5-3.8% range. All normal expenses deducted management maintenance landscaping and so on.

Does that sound about right?

[Huong Luu]

Thats on the low end. Each lender has their own cap rate they use for funding, and you can check the most recent CMHC reports. I am getting around 4.5-5%. The lower the cap rate, significes less risk, better client profiles, etc. Also cap rate is only 1 # to look at. Good luck. 

[Marco L.]

Quote from @Huong Luu:

Thats on the low end. Each lender has their own cap rate they use for funding, and you can check the most recent CMHC reports. I am getting around 4.5-5%. The lower the cap rate, significes less risk, better client profiles, etc. Also cap rate is only 1 # to look at. Good luck. 

What else would you recommend looking into before I get serious about properties? Prices for multifamily is quite high in bc but not much that can be done about that.

[Barry Ruby]

@Marco L.

Marco,

Are you looking for for a value add deal or a property that has little or no deffered maintenance?

In either case, the cap rate to focus on is the acquisition cap rate which represents the UNLEVERED year 1 cash on cash yield you will receive before introducing debt payments.

Given the current cost of capital, introducing -7% debt against a -4% acquisition cap rate will surely trash your after debt coc.

The only way a 3 or 4% acquisition cap can work is with a healthy value add development plan.

[Marco L.]

Quote from @Barry Ruby:

@Marco L.

Marco,

Are you looking for for a value add deal or a property that has little or no deffered maintenance?

In either case, the cap rate to focus on is the acquisition cap rate which represents the UNLEVERED year 1 cash on cash yield you will receive before introducing debt payments.

Given the current cost of capital, introducing -7% debt against a -4% acquisition cap rate will surely trash your after debt coc.

The only way a 3 or 4% acquisition cap can work is with a healthy value add development plan.

 Looking for something that is more or less renovated and not needing much work just turn key. I'm assuming I'll get a lower cap on that and my only way to add value is by increasing rents annually based on the provincial max amount allowed to increase rents?

I'm not finding much unrenovated even that is even near 4% cap (net income divided by acquisition price). Not wanting to look into smaller towns or communities up north I assume it'll be a tough battle to find something worth while that doesn't need too much work.

[Huong Luu]

Quote from @Marco L.:

Quote from @Huong Luu:

Thats on the low end. Each lender has their own cap rate they use for funding, and you can check the most recent CMHC reports. I am getting around 4.5-5%. The lower the cap rate, significes less risk, better client profiles, etc. Also cap rate is only 1 # to look at. Good luck. 

What else would you recommend looking into before I get serious about properties? Prices for multifamily is quite high in bc but not much that can be done about that.

-crime rate

-look in 2ndary and 3rdary markets. As the primary market is priced high, when these primary markets expend, they will come to the 2nd/3rdary markets

-avoid 1 industry towns. This can lead to a 'ghost town'

-decide what kind of partnership you want, and what you bring to the table (ie use a SWOT analysis) 

Good luck

[Mike Lang]

While I can’t speak for what others are paying, I can tell you the cost to build new here is not inexpensive. 

 I have been running numbers on a 40ish unit new build on a property I own in what would likely be looked at as a 3rd-ary market. 
I am having trouble deciding if I should go ahead for a few reasons, one being that I would require outside investment and the cap rate could be as low as 4%, once rents are stabilized.
Now, that is using todays rents, somewhat conservative numbers, with a 3% vacancy when effective vacancy is 0%. 
The property is rural so cost of utilities and development may be higher, but on the flip side there is currently no competition, extreme demand and very few other properties that could potentially compete in the future.

[Robert Ellis]

Quote from @Mike Lang:

While I can’t speak for what others are paying, I can tell you the cost to build new here is not inexpensive. 

 I have been running numbers on a 40ish unit new build on a property I own in what would likely be looked at as a 3rd-ary market. 
I am having trouble deciding if I should go ahead for a few reasons, one being that I would require outside investment and the cap rate could be as low as 4%, once rents are stabilized.
Now, that is using todays rents, somewhat conservative numbers, with a 3% vacancy when effective vacancy is 0%. 
The property is rural so cost of utilities and development may be higher, but on the flip side there is currently no competition, extreme demand and very few other properties that could potentially compete in the future.

 4% is crazy. I'd recommend getting involved early on in land acquisition, rezoning, vertical development and construction facilitation your equity will be substantially higher 

[Mike Lang]

Quote from @Robert Ellis:

Quote from @Mike Lang:

While I can’t speak for what others are paying, I can tell you the cost to build new here is not inexpensive. 

 I have been running numbers on a 40ish unit new build on a property I own in what would likely be looked at as a 3rd-ary market. 
I am having trouble deciding if I should go ahead for a few reasons, one being that I would require outside investment and the cap rate could be as low as 4%, once rents are stabilized.
Now, that is using todays rents, somewhat conservative numbers, with a 3% vacancy when effective vacancy is 0%. 
The property is rural so cost of utilities and development may be higher, but on the flip side there is currently no competition, extreme demand and very few other properties that could potentially compete in the future.

 4% is crazy. I'd recommend getting involved early on in land acquisition, rezoning, vertical development and construction facilitation your equity will be substantially higher 

 It is not what I was hoping for! I’m creating the lot through subdivision and would need to be re-zoned so don’t think I can get any earlier on. I’d love to know what others would be looking at as a cut off cap rate for a similar sized new build in the area.

Are you working in the area? It looks like your in Ohio.

[Robert Ellis]

Quote from @Mike Lang:

Quote from @Robert Ellis:

Quote from @Mike Lang:

While I can’t speak for what others are paying, I can tell you the cost to build new here is not inexpensive. 

 I have been running numbers on a 40ish unit new build on a property I own in what would likely be looked at as a 3rd-ary market. 
I am having trouble deciding if I should go ahead for a few reasons, one being that I would require outside investment and the cap rate could be as low as 4%, once rents are stabilized.
Now, that is using todays rents, somewhat conservative numbers, with a 3% vacancy when effective vacancy is 0%. 
The property is rural so cost of utilities and development may be higher, but on the flip side there is currently no competition, extreme demand and very few other properties that could potentially compete in the future.

 4% is crazy. I'd recommend getting involved early on in land acquisition, rezoning, vertical development and construction facilitation your equity will be substantially higher 

 It is not what I was hoping for! I’m creating the lot through subdivision and would need to be re-zoned so don’t think I can get any earlier on. I’d love to know what others would be looking at as a cut off cap rate for a similar sized new build in the area.

Are you working in the area? It looks like your in Ohio.

 Yes Columbus OH and the 4 major city markets in florida for land development. I'm working on a 20 unit for a guy from biggerpockets we are helping him get his land out of a flood plain and start get land variances to build. Checking allowable densities. It's in plant city, FL (submarket of Tampa)