Before getting into the conversation about what makes an excellent cap rate, it's worthwhile to first look at how to calculate this number!
While there are regional variations, it is generally agreed that assets of lower capitalization rates (e.g. 4-5%) would be either a class A asset or a class B asset.
Bottom line: What's a good cap-rate for multifamily? There is no single answer to that question. It is a combination of many factors, including your appetite to risk and your location that determines whether or otherwise a cap rate can be reasonable.
Investments are asking: What is the best cap rate for real estate property? You can also ask what the cap rate is for multifamily real property properties. Let's take a look at five important facts about the cap rate to help you decide whether your potential investment is worth it.
The deal is incomplete without the capitalization rate. Real estate syndicators argue that the capitalization is just as important in multifamily real property as the net operational income. They even consider the purchase price to be equally important. This is how you calculate the property's worth and decide whether to invest in it.
The method of calculating this metric can be done easily. You need to divide the asset's net operation income (NOI), by the purchase price to calculate the caprate.
However, cap rates may vary depending on where you live. A NYC property will have a cap rate that is 6%, while a rural property may have a lower rate. The rule of thumb for real-estate investors is that more populated cities will have greater cap rate compression. These cities have, in other words, lower capitalization rates.
