Posted by ray@lcorn on July 15, 2003 at 12:15:07:
Roy,
I would use something other than a rule of thumb to make a decision regarding value. A cap rate is merely a snapshot of the potential return on one year of operation as if the property were bought with cash.
If the property’s price, financing and performance can deliver the return you require on your capital, risk and effort over the targeted hold period, then it is worth pursuing.
ray
Is this a good deal? - Posted by Roy
Posted by Roy on July 08, 2003 at 12:49:12:
I am looking at a multi Unit property that has 8 units all fully rented and I know the area very well. I own the 4 unit building next door so I know the rents and the vacancy rates. The market cap however is only 8.5% (I did also include the management fee of 6% as part of the expenses) I am using a rule of thumb that anything that is 2% over the interest I pay the bank is still worht investing in. What do you think?