CAP Rates

[AHWilliamson]

looking at purchasing a 6+ multi-family property in Ottawa...from others experience is a 10% CAP rate reasonable to expect in this segment of the Ottawa market?

 

[Nir]

QUOTE (AHWilliamson @ Sep 17 2010, 02:18 PM)
looking at purchasing a 6+ multi-family property in Ottawa...from others experience is a 10% CAP rate reasonable to expect in this segment of the Ottawa market?




Hi, although I never looked there, I'm guessing the answer is: no, it is impossible to find a 10% CAP in a non-crime area in Ottawa!

well, unless you get the number from a RE agent since some of them have an incredible and very unique skill to present a 6% CAP as 10%.

some methods I have come across:

- estimating repair cost as 2% of rent.

- not including any of the following expenses which are equivalent to around 20-25% of the rent(!): property management, vacancy, maintenance and repair. so pls calculate it yourself and remember.. it's just an estimate. Cheers.

 

[Pheenix]

QUOTE (investmart @ Sep 17 2010, 07:53 PM)
Hi, although I never looked there, I'm guessing the answer is: no, it is impossible to find a 10% CAP in a non-crime area in Ottawa!

well, unless you get the number from a RE agent since some of them have an incredible and very unique skill to present a 6% CAP as 10%.

some methods I have come across:

- estimating repair cost as 2% of rent.

- not including any of the following expenses which are equivalent to around 20-25% of the rent(!): property management, vacancy, maintenance and repair. so pls calculate it yourself and remember.. it's just an estimate. Cheers.




I think one critical point being made here is to do your own 'normalization', but get all the data.



Similarly, if it is being promoted as a 10 cap they are basing it on the asumption they will have a lower selling price (and higher cap), so as suggested, there is something wrong - higher crime, structural or major system expense looming, internal tenant problems (drugs or other). These is an especially strong caution if the property has been on the market for a while. Do your research and homework.



On the other hand if the owner recently died, without insurance, and 'final return' taxes are coming due, on a leveraged, long-held property . . ., in which case also try and get some post closing warranties, assistance in financing, with rights to set off, and assume the property will move and close fast, as more experience investors will have the market information, and experience to review the property and financials.



Good luck.

 

[Thomas Beyer]

QUOTE (AHWilliamson @ Sep 17 2010, 01:18 PM) looking at purchasing a 6+ multi-family property in Ottawa...from others experience is a 10% CAP rate reasonable to expect in this segment of the Ottawa market?
no .. only on (realtor or owner) enhanced pro-formas that show unrealistically low expenses such as no R&M, no management fees of 12% for a 6-plex .. and low vacancy such as 2%

Frequently such buildings also need immediate major investment such as: new roof, new hallways carpets, new boiler and/or new fridges .. and once added to purchase price with true expenses (in bad areas, for example) sub 5% CAP rates are not unusual !!

Realistically, expect a 6-6.5% CAP rate .. using TRUE EXPENSES and TRUE VACANCIES (for example in a bad location the vacancy is probably 20% counting non-collections)

 

[AHWilliamson]

Tnank you to all that have replied.
Since I wrote the initial post I have been doing alot of homework in that market. 9-10% CAP is available but in "dodgy" areas. In the better areas 6% is the norm.
The points are all well taken about the veracity of the calculation. Most of my first cut calculations are done through listing....so there really is room for "creativity" on the calculation of the GOI. That is why it is just a first cut for me, and why on this first cut I want to see it in the higher range because I know when I really calculate the GOI....it could drop a percent or two!
Many thanks all for your input...always appreciated.
Andrew

 

[Thomas Beyer]

QUOTE (AHWilliamson @ Sep 22 2010, 07:32 AM)
Since I wrote the initial post I have been doing alot of homework in that market. 9-10% CAP is available but in "dodgy" areas. In the better areas 6% is the norm.


indeed .. have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html

 

[AHWilliamson]

QUOTE (ThomasBeyer @ Sep 22 2010, 12:31 PM)
indeed .. have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html


Thomas...many thanks for these links. Your advice is very much appreciated. Although I own several properties on my own I am just putting together my first jv on a multi-family in the Ottawa market, so am working through all the steps. Your mentorship through these posts is very welcome. If I have specific questions can I contact you directly?

Andrew

 

[Thomas Beyer]

QUOTE (AHWilliamson @ Sep 23 2010, 07:58 AM) .. If I have specific questions can I contact you directly?
sure .. email [preferred with some detail] and voicemail is open 24/7 !!