Cap Rate, PCF I'm Confused!
Okay, I have been looking to get into multi's for about a year now, I've done a ton of research and am currently looking around for a good buy. When running numbers on a multi (looking at 3 units) what method should I use? I have figured cap rates and around here they aren't great most are between 7 to 8%, I am looking to get into something with at the very least a 9% cap. Am I even in the right direction?? Talking to an investor in my area the other day and he said he never uses a cap rate, he goes strickly by PCF, if he earns a $800 a month than he considers it a deal if not he passes. The best I have found is $500 PCF per month? Am I missing something? Is the market over inflated here? Is $500 PCF per month a respectable return? :-?
This is a loaded question.
$500 per month is a tremendous cash flow if you did the deal with none of your own money and it doesn't eat up any of your time.
$500 per month sucks if you used $30,000 of your own money to get into it and it takes up 30 hours a week.
Bottomline is this: You have to decide what is good enough for you. It's that simple. For me in my area I expect at least $75 per month per unit positive cash flow.
On 1-4 units, value is primarily determined by comparable sales.
Why are you in RE? Appreciation? Tax Shelter? Work for yourself rather than someone else? Passive income? Make quick cash? Depending on what your answer is will determine what is good enough for you.
There is no concrete answer. You need to decide what is good enough for you and then go out and find it.
I will be putting some of my own money in, 20% for the downpayment. I am getting into RE for long term income, meaning something to have at retirement (hopefully early retirement 8-) ). Not looking for the "get rich quick" RE investment more geared towards long term. Looking into foreclosures for qucik turn over cash but the multis for a steady stream of income down the road.