prevailing cap rates

[koffeedan]

1.Where would I find the prevailing cap rates for different areas.
2.Does somebody know the cap rates for 3/4-plexes in Barrie and Kitchener Waterloo.
and lastly, what would be the minimum cashflow per door would you expect to make, if financing at 100% (90% +cmhc premiums + simple interest only on 10% downpayment from loc)

Thanks for the info

 

[Nir]

An estimate for Barrie: 6-7% CAP and around $100-150/door.

 

[invst4profit]

Wow 6-7% is it historically that low in your area.

 

[Nir]

QUOTE (invst4profit @ Jul 2 2009, 09:27 PM)
Wow 6-7% is it historically that low in your area.




Well, 6-7% is just my estimate based on around 10 properties I viewed in Barrie in the past couple of years.



I agree it's low Greg and therefore have NOT purchased anything in Barrie. I own one in Orillia instead with CAP of around 9%.



Is there anyone investing in Barrie who believes the CAP is higher there? I doubt it. However, based on REIN's research there are

some other good reasons to invest in Barrie - related to expected appreciation though, not good cash flow.

Since Orillia is also ranked high by REIN I preferred buying there with higher CAP.



Regards,

Neil

 

[housingrental]

Most (non student) purpose built or newer 3 and 4 plex`s in both KW and Barrie are pricey and sell at true cap rates of less than 6%
You can find converted houses to plex`s in both markets for better but often with deferred maintenance, items at end of their life span, or wonky setups
Stay away from them entirely. Step up to a larger plex`s that sell at a higher rate, look to student housing, or buy 2 townhouses instead of 1 triplex

 

[koffeedan]

QUOTE (housingrental @ Jul 3 2009, 12:51 PM)
Most (non student) purpose built or newer 3 and 4 plex's in both KW and Barrie are pricey and sell at true cap rates of less than 6%

You can find converted houses to plex's in both markets for better but often with deferred maintenance, items at end of their life span, or wonky setups

Stay away from them entirely. Step up to a larger plex's that sell at a higher rate, look to student housing, or buy 2 townhouses instead of 1 triplex




I'm finding a lot of these wonky setups as you call them. They seem to be the only ones that have some cashflow. Thanks guys for the information. Might have to change my five year plan a bit.



Dan

 

[housingrental]

Be careful with these. Most of them aren`t actually cash flow positive under normal financing when examined under a few years scenario... Vacancies, uncollected rent, and most importantly maintenance costs will burn through your supposed profit very fast!! Rents have to increase, or prices have to fall ALOT in KWC and Barrie before your making any real money on purchases like those.. and more pain awaits if your first mortgage is at 6% interest in 5 years from now...


QUOTE (koffeedan @ Jul 8 2009, 10:33 PM) I`m finding a lot of these wonky setups as you call them. They seem to be the only ones that have some cashflow. Thanks guys for the information. Might have to change my five year plan a bit.

Dan

 

[Nir]

Hi Adam,

How do you distinguish between a "wonky setup"/deferred maintenance property and other properties? Is any 85 years old 3-plex a "wonky setup" for example if it is sold for a price that apparently allows nice net income?

Yes, it`s good to have rules of thumb that save search time and help exclude bad properties. However, be careful not to generalize in ways that do not allow you some additional due diligence on properties that generate a nice long term net income of say $150-200 a door a month on average with 15% down.

Regards,
Neil

 

[housingrental]

You can distinguish it by potential long term cap rate when factoring expected maintenance costs over a a number of years. There's lots of places for sale that might give a 7.5% cap but when you factor in extra 5k of repairs averaged out over a few years they won't.



In my market, KWC, you can pretty much exclude any non student triplex as being worthwhile. I follow every listing that comes to mls/icx, and often get through a bunch of places for sale a few times a month with clients. Over the last six years I've not seen single one sell thats made much sense to me. I periodically check up on Barrie, and I've not seen anything interesting either..



Your situation might differ.








QUOTE (investmart @ Jul 9 2009, 05:18 PM)
Hi Adam,



How do you distinguish between a "wonky setup"/deferred maintenance property and other properties? Is any 85 years old 3-plex a "wonky setup" for example if it is sold for a price that apparently allows nice net income?



Yes, it's good to have rules of thumb that save search time and help exclude bad properties. However, be careful not to generalize in ways that do not allow you some additional due diligence on properties that generate a nice long term net income of say $150-200 a door a month on average with 15% down.



Regards,

Neil

 

[Nir]

Thanks Adam. I can not say my situation differ as I haven`t purchased there either.

 

[Thomas Beyer]

QUOTE (housingrental @ Jul 9 2009, 11:29 AM)
Be careful with these. Most of them aren't actually cash flow positive under normal financing when examined under a few years scenario... Vacancies, uncollected rent, and most importantly maintenance costs will burn through your supposed profit very fast!! Rents have to increase, or prices have to fall ALOT in KWC and Barrie before your making any real money on purchases like those.. and more pain awaits if your first mortgage is at 6% interest in 5 years from now...


indeed !!





try to stay above 7% CAP rate in large centers in Ontario and above 8.5% in smaller towns .. very hard to find though .. but PATIENCE IS REQUIRED THESE DAYS !!



You can buy lower CAP rates in AB or SK as you adjust low rents to market within a year .. s.th. that is hard to do in BC or ON !!



related post .. showing that equity gain not the only way to make money in RE: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html

 

[housingrental]

Cool

You should be glad you havent

QUOTE (investmart @ Jul 10 2009, 09:15 PM)
Thanks Adam. I can not say my situation differ as I haven't purchased there either.

 

[JoeRagona]

I purchased in both Barrie and KWC. I am guessing you are talking only about mutli-door units when you are interested in the CAP rate.

My CAP rates on all my TH are much lower than 7% but I am cash-flowing at the moment. I have also stress tested each and the first couple may be overleveraged at this time, but I plan on doing something abou that.

Do you typically worry about the CAP on a SFH also? If so, what would you like to see?

 

[Nir]

QUOTE (JDRInvestments @ Jul 21 2009, 11:50 AM) Do you typically worry about the CAP on a SFH also? If so, what would you like to see?

Hi Joey,

CAP rate was invented to evaluate apartment buildings/plexes. However, often it is being estimated for SFH too. To answer your question "do you worry about CAP on SFH", I don`t buy SFH because their CAP Rate is too low even in good top REIN cities. HOWEVER, people made millions on
SFH thanks to appreciation (with minimal cash flow while holding though). so it all depends your goal. I like to say the less motivated you are to continue being an employee (if you are an employee now), the higher weight you will give cash flow when buying properties. Because if you like your current job, you can buy anything you want as long as there is no negative cash-flow, sell in 10 years, and you will probably do very well.

Regards,
Neil

 

[OlegP]

QUOTE (investmart @ Jul 21 2009, 04:58 PM) Hi Joey,

CAP rate was invented to evaluate apartment buildings/plexes. However, often it is being estimated for SFH too. To answer your question "do you worry about CAP on SFH", I don`t buy SFH because their CAP Rate is too low even in good top REIN cities. HOWEVER, people made millions on
SFH thanks to appreciation (with minimal cash flow while holding though). so it all depends your goal. I like to say the less motivated you are to continue being an employee (if you are an employee now), the higher weight you will give cash flow when buying properties. Because if you like your current job, you can buy anything you want as long as there is no negative cash-flow, sell in 10 years, and you will probably do very well.

Regards,
Neil


Good point, Neil! Anybody who is familiar with Robert Kiyosaki`s teachings knows that a solution to working less for somebody else (E quadrant) or even for yourself (S quadrant) is to build a system which produces passive income. In other words, in loose terms, income comes whether you do something or not. Arguably, cashflow from rental property is a form of passive income. The more cash flow your properties produce the less you have to work elsewhere. Single family homes rarely provide cash flow worth mentioning, unless you set it up as a Rent to Own, in which you are balancing getting some of your profit now, and the rest upon sale.

As Adam and Thomas mentioned, a lot of patience is required now to find a 3-4 unit building that makes sense. I have been checking Hamilton for almost a year, and cannot find a decent 4-plex. They are either "illegal", "wonky set-up", or way overpriced. I am currently spending a lot of time trying to learn how to acquire commercial apartment buildings (5-plex and up). Those can provide great cash flow, but the rules of the game are much different from buying below 5-plex. Many high fees and downpayment requirement is higher.

 

[Nir]

QUOTE (OlegP @ Jul 21 2009, 06:15 PM) Good point, Neil! Anybody who is familiar with Robert Kiyosaki`s teachings knows that a solution to working less for somebody else (E quadrant) or even for yourself (S quadrant) is to build a system which produces passive income. In other words, in loose terms, income comes whether you do something or not. Arguably, cashflow from rental property is a form of passive income. The more cash flow your properties produce the less you have to work elsewhere. Single family homes rarely provide cash flow worth mentioning, unless you set it up as a Rent to Own, in which you are balancing getting some of your profit now, and the rest upon sale.

As Adam and Thomas mentioned, a lot of patience is required now to find a 3-4 unit building that makes sense. I have been checking Hamilton for almost a year, and cannot find a decent 4-plex. They are either "illegal", "wonky set-up", or way overpriced. I am currently spending a lot of time trying to learn how to acquire commercial apartment buildings (5-plex and up). Those can provide great cash flow, but the rules of the game are much different from buying below 5-plex. Many high fees and downpayment requirement is higher.

Hi Oleg, VTB might help put much less down in the case of apartment buildings. it is more common too. good luck in the search and keep me updated or at least us : - )

 

[Thomas Beyer]

QUOTE (investmart @ Jul 21 2009, 04:58 PM)
CAP rate was invented to evaluate apartment buildings/plexes...


CAP rate is net operating income divided by price, i.e. the CAPitalization of the income stream ! i.e. it answers the question "how much would you pay for an income of $10,000 per year into perpetuity" ?



It is the inverse of the P/E ratio to evaluate stock prices !



CAP rates differ by asset class, asset size, macro- and micro-location, expected future rents, rent control laws, interest rates, city size and asset condition.



It can't be used as the only metric to evaluate properties !



Use these rough figures:



Vancouver: 5% or so

Major Canadian cities: 6.5% to 7% or so

Smaller centers: 7.5% to 10% or so



add % for ugly properties, poor locations or huge deferred maintenance. The higher the CAP rate the higher the (perceived or often real) risk !

 

[housingrental]

Sure JDR I would worry about cap rate on SFH.
Either your an investor or a speculator.
Your buying a business - And 5 years later the asset value might not have increased much.. or even decreased... and your operating expenses could be higher... or rent could drop....

Will they be cashflowing if your first mortgagtes are at 5.5-6%?
When you need to replace the flooring in them?
When something breaks ?
When your furnace goes its $2500... if you have a townhouse that throws off $200/month in cash flow now what will it looks like when your mortgage payment is $150 more per month and you start having to repair and replace items?


QUOTE (JDRInvestments @ Jul 21 2009, 02:50 PM) I purchased in both Barrie and KWC. I am guessing you are talking only about mutli-door units when you are interested in the CAP rate.

My CAP rates on all my TH are much lower than 7% but I am cash-flowing at the moment. I have also stress tested each and the first couple may be overleveraged at this time, but I plan on doing something abou that.

Do you typically worry about the CAP on a SFH also? If so, what would you like to see?