Hot take: I used to think cap rates were the only number that mattered for deals

For about 3 years I only looked at cap rates when evaluating multifamily deals. I passed on a 12-unit in Phoenix last summer because the cap rate was 5.8% and I thought that was too low. A buddy who bought a similar property nearby pointed out his NOI grew 22% in two years from rent bumps and expense control. Now I pay way more attention to market rent growth potential and expense ratios than just the cap rate. Anyone else shift their focus after missing a good deal?

2 comments

2 Comments

robertb303d ago

So you're saying you only looked at cap rates for three years and never once checked the market rents or expense trends on the properties you looked at? That's like buying a car based on the color without checking the engine. The cap rate tells you what the deal looks like right now, but it doesn't tell you if the rents are 20% below market or if the seller was running the building like a charity. You should have been looking at comparable rents and expense ratios from day one, not after a buddy made you feel dumb about it.

alice_wilson7316h ago

Wait, you're telling me that guy literally went THREE YEARS without once checking market rents or expense ratios? That's wild. Like, I get learning as you go but man, that's a long time to just stare at one number.