According to NAR, 42% of small rental properties have a cap rate below 5%

[Katie Linder-Jesse]

According to the National Association of Realtors, 42% of "mom and pop and small rental properties" have a cap rate below 5%.  Do you agree or disagree based on your own investments BP community?  I would think it would be a higher cap rate  in this category but maybe in our recent and current market people are willing to take a smaller cap rate for long term investments. Here's the article for more interesting facts and figures. https://www.nar.realtor/blogs/economists-outlook/mom-and-pop-business-owners-day-landlords-of-small-rental-properties

[Chris Martin]

I ran a quick calculation of annual rents / current market value for properties I own individually or via an LLC. The average across all properties was 5.7%. So, the NOI / current market value (definition of cap rate) for my portfolio will certainly be less than 5%. Post pandemic, market values have increased significantly more than rent rates, thus decreasing the ratio and dropping the cap rate. Of course, if I look at annual rents / acquisition price, the ratio is significantly higher. My annual rents / loan amount for recently (within the last 2 years) refinanced property is roughly 10% which may be a better indicator of 'health' of the rental.  

BTW, the term cap rate generally applies to commercial property. I understand that NAR is trying to make a point with their statistic. To me, the more interesting statistic is #8, "33% of these landlords have a mortgage or similar debt." That means 67% own property free and clear. The older owners who want to retire would be prime candidates for an installment sale to distribute capital gains across multiple years. I'm sure others have posted about this. I plan to add my own post sometime soon. 

My big concern is today's new investors buying in bad market conditions. They are in for a rough ride in many markets.