The higher the cap rate, the greater the risk. A higher cap rate pays higher returns but the risk is greater. So it depends on your strategy, Can you increase NOI by raising rents, remodel the building and change the quality of the building and tenants Etc Etc.I think most investors like cap rates between 8 and 12. Cash on Cash returns are also considered!
Hope this helps,
Michael Mangham
MD Home Acquisitions LLC
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Knowledge is power, but execution trumps knowledge. Tony Robbins
Typically higher cap rates are associated with lower class properties such as Class C and D properties, which have their own level of risk associated with them and like Michael pointed out they can have some great potential too. Sellers typically will offer these with higher cap rates, because they want to make them more attractive to investors.
In many cases, you might be able to reduce expenses that will increase cash flow and thus value too. There are a lot of properties that are mismanaged that offer a lot of potential if you get the right managment in place and can find excessive expenses that are not necessary to support and maintain the day to day of the proeprty. Apartments should have on average an operating expense ratio of 35-45%. Obviously, if you are offering month to month rentals, you will have higher expenses than if you offer year contracts.
__________________
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
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The higher the cap rate, the greater the risk. A higher cap rate pays higher returns but the risk is greater. So it depends on your strategy, Can you increase NOI by raising rents, remodel the building and change the quality of the building and tenants Etc Etc.I think most investors like cap rates between 8 and 12. Cash on Cash returns are also considered!
Hope this helps,
Michael Mangham
MD Home Acquisitions LLC
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
Typically higher cap rates are associated with lower class properties such as Class C and D properties, which have their own level of risk associated with them and like Michael pointed out they can have some great potential too. Sellers typically will offer these with higher cap rates, because they want to make them more attractive to investors.
In many cases, you might be able to reduce expenses that will increase cash flow and thus value too. There are a lot of properties that are mismanaged that offer a lot of potential if you get the right managment in place and can find excessive expenses that are not necessary to support and maintain the day to day of the proeprty. Apartments should have on average an operating expense ratio of 35-45%. Obviously, if you are offering month to month rentals, you will have higher expenses than if you offer year contracts.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125