Posted by Ferris Anderson on June 27, 2007 at 14:12:10:
Cap rate is going to be different for each investor and will depend on the expenses that must be paid on the property. If you are looking for 80% or greater leverage on this property a 7% cap rate may not be enough. If you are using cash however, that may be a decent return. More important than cap rate for your consideration is marketing time (especially if you are financing the deal!!!). How long will it take you to market the property if it becomes vacant? This plus anticipated delinquency would determine your vacancy rate. Put this revised number in your cap rate formula and then you will know if this is a good investment or not. If you require any assistance in structuring finance for this deal let me know. Just drop me a line.