hi Neil,
what I was trying to point out in the example that I gave of the 4 plex that capped less than 4%, was that with the smaller unit buildings you don`t always know the reason behind the purchase. In that particular case I knew the back story, I knew that it was to be owner occupied and that it sold for $50,000 over the next highest offer, which may or may not have been owner occupied as well, it was $75,000 over what I was willing to pay. The smaller unit buildings can be emotional purchases, so just because that one capped at 3.5% doesn`t mean that you if you buy the one next door and it caps at 4%, that you are getting a good deal. You need to do your due diligence. Smaller unit buildings might have a smaller cash flow, but increase in value at a higher rate, be easier to sell. There are a lot of other factors to consider.
I can`t help you with the cap rate of properties in Orillia, but having had a few appraisals done recently, I am learning that it`s very difficult to find true and accurate cap rates of the smaller 2-4 unit properties. Talking to one of the appraisers I realized that he based his #`s on stated net income from the mls listing. He assumed that the stated net income included things like property management, vacancy and repair and used that to determine cap rates for the area, but as it turns out I had put in offers on at least 3 of the comparable properties that he was using and having looked at the expense statements provided by the owners knew for a fact that in all 3 cases the stated net income did not include vacancy, repair or property management, the appraiser on the other hand did not have access to this information and was just going on an assumption, therefore, his cap rates were incorrect. I think that it`s probably more difficult to get accurate cap rate information on buildings that size as opposed to the larger unit building where any potential purchaser will want to scrutinize all the #s very thoroughly before putting in an offer.
The other thing you need to be wary of with stated cap rate is deferred maintenance, the first year or so can show a negative cash flow if the property is older and needs maintenance.
I know this doesn`t help much because what you really want to hear is some magic # where anything above it is good and anything below it is bad, but there is so much else to take into consideration that no one magic # really exists. Instead concentrate on other questions like is this a short or long term hold, what are your expectations of cash flow and/or equity appreciation. Basically it seems that anything with a good cash flow doesn`t have the highest appreciation and properties that are increasing in value the most don`t have great cash flow so you need to find a balance that works for you.
Sorry I can`t be of more help,
Terri
