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.