You get a cap rate of .09.

You estimate the cash flows, apply a CAP rate, then value the building.

At 50% expense, that's a cap rate of about 3.7%, which is competitive with a lot of other California commercial properties, or certain commercial properties everywhere (look up NNN cap rates for Starbucks and McDonald's, for example).The California market is known to usually be about appreciation anyway, not cash flow.

I had heard from a guy I really respect several years ago to get a 10 cap. this is currently laughable in my area. it occurs to me though that that may have been back when debt rates were about 7.so then now with debt rates at 4 or 5, is a cap of 7 or 8 the new 10?

At a price tag of $425,000, that is a Cap Rate of nearly 14% (13.7% to be accurate).

In summary do your homework, vet the expenses, make sure a cap expense allocation is included (even if RE has just been rehabed the lifespan of all components has started), find out exactly what is included in the PM costs and if that is the full extent of the PM fees (i.e. is there a markup on contract/maintenance work, are inspections included, etc.).Good luck

Is it a cap or not?

I am a broker myself, but I get a heads up from a lot of REO brokers in the area on hot deals before they hit MLS because I've shown I am also a capable cash buyer that WILL close and NOT load a bunch of weasel clauses in my offer.

For those selling not under duress - a cap rate of 7-7.5% is the average.

We like to see a cash on cash of 12%+, debt coverage ratio of 1.6%+ and a CAP of 8%+I have a case study where Dave took a 100 unit property from Loopnet and showed how he would evaluate it and what he would pay for it.