CAP Rate And What Would Be A Good Price On Triplex?
I am working with a seller right now on this property:
Triplex, $500 month each unit for $1,500 total mthly or $18,000 yearly income. Ins. $1,000 yr., taxes 1,500 yr., maint. and vacancies total about 1,000 yr. (Stays rented) CHA, block, built in the 70's. Good terms, (as in low or no down).
For you more experienced investors, what would I want to be a desirable buying price for this? Retail and wholesale.
Also, what would the cap rate be at say a $130,000 selling price? $120,000? I calculated 11.15 % CAP at $130k and 12% at $120K. Did I do it right? Is 11% a good CAP? 12%
Thanks [ Edited by Ricker on Date 02/08/2004 ]
Are there other triplexes in the area that have sold recently? If so, what is the average price they sold for? If you get this number, then you have a comparable value for the property you are looking at.
Estimating value using the cap rate is done when there are no comparable sales to go by. You need to know the property's annual net operating income (current rent minus operating expenses to include property taxes and insurance).
Value = (Net Operating Income) / (Required Cap Rate)
If the net operating income is $12K per year, and if you require a 10% cap rate, then the most you will be willing to pay for the property is $120K.
No other ideas? Out of all you pros? [ Edited by Ricker on Date 02/09/2004 ]
Thanks for your reply.
Dont know if there any others sold recently in area.
Net income is $14,500.
A cap rate of 10% or higher is usually a good investment. What type of interest rate are you getting? Any other variables?
What is the owner asking? Who knows he might want 100K for it...ask him and then you can start figuring out what you want to pay for it...
Keep us posted...
Q
It was to my understanding that figuring a CAP rate for anything less than 5 unit properties was pretty inaccurate...??
I would really go on comps and similar property in the area.
CAP rates are sometimes a tough metric to use as they do not consider debt service. You have a hard time finding any income property in CA that is worthwhile with a CAP rate over 8%.
Molotov
I would appear to me that the cap rate would be significant to you only if you are planning to buy and hold or from an investor standpoint.
4-plexes and smaller are not valued using a capitalization rate, they undergo the same appraisal process (more or less) that residences do. You need to find a comparable that has "sold" and then that will give you the value of your property. HOpefully you buy for less and have great cash flow.