Multifamily Cap Rate in Different Cities


#21

Some people bought houses for 250k-350k in 2011 and renting for $3000. Not a lot lower than the 1996 buy. Sometimes you do not need to hold very long if you are lucky


#22

Regarding appliances, you have tax amortization schedule. But, you need account average for an year.

If vacancy reduces income, naturally you need to account vacancy, but fairly accurate vacancy.

There are two ways to calculate Cap rate. 1) With assumption 2) with actual values (tax filed). The second one is more reliable than assumption one as many assumptions are balpark values.

For example, you said “allow 1 month vacancy for each year”. Never faced vacancies, more than 5 to 7 days, for the last 10 years except first month after purchasing a home. This is mainly to make it as move in condition gap.

Cap Rate is an indication to see whether you are getting right cash flow return on your investment. You need to have fairly accurate value to get cap rate. Otherwise, you may see low cap rate and will miss buying a real estate !

In cap rate, all income and expenses are actually calculated except mortgage interest.


#23

My computation indicates need to set aside at least $1000 per year for replacement of appliances/ roof/ painting/ HVAC/ Carpets.


#24

Yes, my average yearly expenses are appx $950 per house for maintenance.


#25

Could be a phenomenon in SV. So far, my rental in SV rent out immediately and didn’t have a gap between change of tenant. But in Austin, need 4-6 weeks* to rent out the first time, so far, only one change in tenant for one of the house, take about 2-3 weeks.
*My property manager is extremely strict in his tenant screening :smile:, not easy to pass. So far, mainly bought during the slow months of purchase/ rental i.e. late fall to winter.


#26

But where can you find 16% cap rate? I have never seen anything remotely that high…


#27

This was 6 year ago, but still Tampa is higher than other places, but may not give 15% given the current investors frenzy mode.

There were many discussions on biggerpockets about cap rate cities.


#28

Well Tampa cap rate is still pretty good. Not 16% good. More like 10%. I need to check with my buddy in Sarasota if there’s any gotcha owning houses in FL.


#29

Let’s say I invest $1M in Tampa with cap rate at 10%. So annual income is 100K.

I can deduct depreciation from that income and don’t pay income tax on that part. Straight line depreciation at 27.5 years means every year I can deduct 36K.

Let’s assume my federal + income tax rate is 40%.

So after tax income out of that 100K = 64K x 60% + 36K = 74.4K

That’s equivalent to a 74.4K / 60% = 125K of W2 income.


#30

Adding a few more:

Sarasota, Florida: 8.3%
Spokane, Washington: 7%
Boise: 6.3%
Salt Lake City: 5.3%

Florida is still the best.


#31

Just would like to add a point for more effective comparison

IMO, Cap rate is like a dividend income and gives cash flow. In addition to cap rate (cash flow), we also need to account appreciation percentage (not 2008-2011, but over a period of 20 years year over year average appreciation).

Combined cap_rate+appreciation_rate provide the exact measurement, which location grows fast.

For example, south san jose cap rate is 5%, but appreciation is 4.5% while west san jose cap rate is 3% and appreciation is 6.5%. In this case, both are same.


#32

True. But cap rate is kind of set in stone, unless rents drop significantly in the future. Appreciation is more varied, and history can’t be relied on to repeat exactly. I want to have some cash cows in my portfolio for balance. That’s the whole point of this exercise.


#33

Best cash cows are self storage and trailer parks…


#34

Self storage is a business and you need to hire people, advertise, etc. It’s not a passive investment, you need operation experience.

Mobile park is nice, but your property rights might be at risk when you want to develop in the end.


#35

Self storage deals are pretty scarce. In the entire state of California there are only 27 deals listed on loopnet, and half of them don’t list the cap rate. Of the 14 that do the median is 7.1%. Unless the ones that don’t list cap rates are significantly higher than the ones that do, cap rate is not that much different from apartments in Stockton or Sac.

I am still scared of mobile home parks. Yes, their cap rates are much higher. I stumbled on a forum site just dedicated to mobile homes. People looking for deals and opinions can find great resources there


#36

Self storage you hire an onsite manager. …Pretty simple…


#37

Self storage cap rates. Many listings on loopnet have their cap rates “on request”. So sample size is not that big even for entire states.

CA: 7.1%
AZ: 7.8%
TX: 6.3%
FL: 8%


#38

When we do business, have it is tax friendly state and also avoid long distance states like Texas and Florida.
We can account near by states like Oregon, Washington,Nevada or Arizona.


#39

Quite a few investors between SF and SJ have discovered Santa Cruz County as a buying opportunity for multifamily. I got cold calls from 3 agents between September and November, each had buyers and called me specifically about one or two of the multifamily properties that we own.

Their script is like this:

  • Cold call owner who (hopefully) has not raised rents in 10 years e.g. $1100 for 2BR.
  • Based on the low rent, convince owner to sell the property (4 to 10 doors) for ~$200k per unit.
  • give notice to all occupants
  • remodel the units for $40k each
  • rent those 2BR for $2500
    The value of that property has just gone up 50%+

That said, they failed to complete step (2). Lots of our rents may be half of market rate, but we won’t give away our stuff.


#40

Doesn’t Santa Cruz have rent control? I’d expect it more like SF than Stockton…