All Forum Posts by: Jonathan G.

I wanted to have somewhat of an open discussion on this topic with the forum and see if I can get some solid feedback here on whether it make sense to invest in lower cap rate areas such as the SF and the Bay area. I'm mostly interested in feedback and motives of people who are already investing or have been invested in the bay area, if possible.

The reality here is that multifamily properties are selling at 4% cap rates. People here (sellers and buyers) anticipate market recovery in 5-7 years, gradual decrease in unemployment rate, and return to continued slowed appreciation in 5-7 years. Also, people have a lot of equity and wealth so multifamily pricing does not go down as I would expect it to be....

I know a lot of people in the forum wont even consider looking at poor cap rates like this but this is the reality here. I can come up with my own analysis and my required return but it wont help me much. The market will eventually dictate the price and as long as sellers have multiple offers, have enough equity and not really motivated, it wont help me analyzing the deal, show how poor my c-o-c return is and bring it to the table as a negotiating factor. This is how the market is here in general. There are still a lot of people who believe in long term appreciation in the bay area.

Has anybody who has been investing in the bay area can share some of his experience when negotiating their multi family deals deals here? How strong these sellers really are nowdays?

So here is a 6 units building, 1/1, very strong rental area in Sunnyvale, CA. heart of the Silicon Valley. Low cap rate but let me know if this make any sense. Deal is offered at $888k. Market comps shows that similar deals are probably selling around $850k.
25% down, 6.25% interest. NOI looks like this:

Rental income $90,000
vacancy 5% (4,500)
Net Income $85,500

Property Tax $(9,912)
Management fees (5,130)
Insurance - Property (2,000)
Maintenance (4,200)
Gas & Electric (1,503)
Water (1,500)
Garbage  (1,500)
Landscaping (900)
Total OPEX (26,645)

Operating income $58,855

mortgage payments (46,307)

Net Income $12,548

Cash on cash is around 5%. The strategy is to buy and hold for at least 5-7 years and hope rent will go up at some point. Until then we can make our 5% c-o-c.

I know some of you will not even look at this ROI but for us, living in the bay area in CA that is the reality. I prefer to stay for now in my farm area where I'm familiar and can manage my deals by my self.

Please provide feedback. Does this deal worth pursuing?

In order to come out with my offer price on a 6 units multifamily building i'm looking at recent sales in the area. I also came out with what I believe is an accurate NOI. My question is simple, how do you come up with the cap rate in the area without knowing what is the actual NOI for comparable properties? I could have used the NOI I calculated for the property I'm planning on purchasing and compare that with my comps saling price but all other comparable are not really similar and have different number of mix units, larger in size etc.

To me it sounds like the best way to come up with the offer price would be to realy study comps (i.e. per unit, per square/foot) and come up with what I believe is reasonable offer.

Knowing the NOI of my property will only give me a feel for my expected return but will not help me determine my offer price.

What am I missing here?

Hi there,

I'm looking to start my marketing campaign with the goal of finding a nice deal on a small multiunit building (6-8 units) in the San Jose, CA area. Any idea as to what would be my target market for sending my direct email/mail? where would I find a good listings? I did my search on the internet and there are so many offers but what was looking for a good advise from any of you....thanks!

Hey there,

I own few properties but now looking to buy my first multiunit building. I started my research in San Jose, CA where I live. I started by researching on loopnet, cariglist and talking to agents in my area. All buildings have low cap rates of no more than 6-7% ?!?. Or at least this is what is published and said around here. Are people actually buying at these low cap rates in my area ?!? I'm planning on starting putting offers at much lower than asking and see the respond I'm getting.....

Can you tell me, in this economy, why would people buy at such low cap rates and bet on appreciation? I don't get it.