What is a good cap rate for multifamily?
This is a question that is often asked by investors when they are looking at potential multifamily properties to purchase. While there is no definitive answer there are some guidelines that can be followed in order to get a good idea of what a good cap rate might be.
First it’s important to understand what the term “cap rate” actually means. The cap rate is the ratio of the net operating income (NOI) of a property to the purchase price of the property. In other words it’s a measure of how much income the property is generating relative to the purchase price.
Generally speaking a higher cap rate is better than a lower cap rate. This is because a higher cap rate indicates that the property is generating more income relative to the purchase price. A lower cap rate on the other hand indicates that the property is generating less income relative to the purchase price.
Of course there are other factors to consider when evaluating a potential multifamily property purchase such as the location of the property the condition of the property the potential for rent increases and so forth. However the cap rate is a good starting point when trying to determine whether or not a particular property is a good investment.
So what is a good cap rate for multifamily property? While there is no definitive answer a good rule of thumb is to look for properties with cap rates in the 5-10% range. Of course there will be properties with higher and lower cap rates but properties in this range are generally considered to be good investments.
If you’re looking for a more specific number a good target cap rate for multifamily property is around 7-8%. This is a sweet spot where the property is generating a good amount of income relative to the purchase price but is still affordable for most investors.
Of course it’s important to remember that the cap rate is just one factor to consider when evaluating a potential multifamily property purchase. However it’s a good starting point and can give you a good idea of whether or not a particular property is a good investment.
What is a good cap rate for multifamily?
The answer to this question depends on a number of factors including the location of the property the condition of the property the current market conditions and the investor’s goals.
Generally speaking a good cap rate for multifamily properties is somewhere between 5 and 10%.
