Posted by Tony Colella on March 18, 2006 at 17:55:00:
CAP rates are still a matter of opinion, just usually someone elses.
Your post details why you as an appraiser are comfortable with CAP rates. My post as an investor detail why I think they are meaningless when I buy.
One word I would suggest you reconsider is “ALWAYS” proper. We invest in a fluid, real world environment where no one way works in every scenario. Personally by defn and use I think CAP rates are flawed from the beginning but I digress and don’t wish to argue this further than has already been buried in the archives here. Again, let’s just admit and agree to disagree.
I see money on the table for deals like these and though they may be small, they put food on the table and act as building blocks to wealth.
This contrast between cap rate folks and myself is not unique. I have and will continue to have a different opinion.
The simple math of money in, less money out, pay myself first and what’s left to cover the debt service works well for me. Your mileage may vary. Even this simple formula is subject to opinion. What is valuable enough for me may not be for you and vice versa.
Even using that simple formula I would tweak the terms of the deal as detailed in the other posts to make the money work.
So the deal is too skinny for you. I will take it and others like it. To each their own.