What is good cap rate to shoot for?

[skssmall]

 I analyze all potential purchases on the cash flow. The only exceptions I make to that rule are properties that are undervalued due to poor management or other factors that I can quickly add value to and create a positive cash flow.To purchase and hope for appreciation will cause me to go broke quickly. I might as well become a politician. 


SKS

[Sean_L]

After reading some of these posts I read one that stated using a cap rate with a single family residence. You should never use a cap rate to derive a value for single family properties. Cap rates are used for commercial property and should not be used on single family or small multi-family properties >=4 units. 

I saw a post talking about a 4-5% cap rates in Cali. I would tell you that that is what has gotten California commercial real estate in trouble. At a 4-5% cap rate there is no money to be made and the buyer is betting on appreciation rather than cash flow which is a losing proposition in this market. Ten years ago it may have worked but not now.

Another side note you don't shoot for a cap rate. You analyze a property based on your goals and investment strategy. Develop your cap rate based on the former. Then make an offer based on your goals. The ball is in the owners court to take it or leave it. If it doesn't make dollars it doesn't make sense.

[VanDyne]

Maybe the question should be a little more accurate. For days I have been searching out topics on cap rates. I've read a lot of references that are opposite of each other on "What is a good cap rate?" and "What is not a good cap rate?".

Even Robert Kiyosaki was not clear with his explanation of cap rate.

I am posting this question under a new topic in this forum so maybe we can get some clear answers.

See you there.

[mcwaddon]

How do you calculate annual NOI???  What are the key expenses that should/must be factored in to make sure it is accurate?

[andydallas]

there is no right answer on what is a good cap rate,,,I deal in single family, i don't use cap rates, but if a property is in a highly desirable neighborhood, one that  I really like, obviously I will do a deal at a lower cash flow (lower cap rate) than a house in a 'so so' area.

Lower income properties will cash flow better than homes in better neighborhoods, but probable won't appreciate as well.

I don't buy anything that doesn't project a good cash flow,,but what is good for one deal isn't good enough for a different house in a different location

[Leonard Vice]

Have you tried going to a cap rate of 10%-15%? Is it too high?