Home Buying in San Francisco>Question Details

Newmfbuyersf1, Home Buyer in San Francisco, CA

What cap rates should you expect when looking to buy a multifamily building in a nice neighborhood ?(russian hill/marina/noe/etc..)

Asked by Newmfbuyersf1, San Francisco, CA Sat Dec 8, 2012

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As an investor, you should buy a property with a CAP rate that's above your cost of capital. In the nice neighborhoods, you're looking at around 4-5%, which would be right at the cost of debt capital. If you're skating that close to the edge, you should perform a cash-on-cash return analysis to see if you'll at least have breakeven cashflow. Unless you have a preference for speculation over 5-15 years, those don't make for good investments.
Web Reference: http://www.archershomes.com
4 votes Thank Flag Link Sun Dec 9, 2012
Hi-I agree with the answers below. I would say it's all about desirability. Low current rents due to rent control will cause a lower than expected cap rate. If it's in a great location or the units themselves are exceptional (conversion potential) a cap rate can get really low. There's no easy answer for this question. Each property has to be evaluated on it's own merits. A knowledgeable agent will help you make the right decision. Feel free to call me if you have any more questions. I was a commercial appraiser for eight years before I got my realtor's license.

Best of luck-Matt Ciganek
http://www.sfpropertyreport.com
415-240-9901
2 votes Thank Flag Link Sat Dec 8, 2012
Hi typically 4.5-6 is a cap rate you might see all over town. however in the specific neighborhoods I just searched and the cap rates are from 2.89-5.30. The cap rates are likely lower due to the areas being the most desireable. Pease call me anytime at 4158607384.
Thank you
Seth
2 votes Thank Flag Link Sat Dec 8, 2012
Not much inventory out there right now, Apartment owners tend to talk among themselves to compare notes on tenants, rents and vendors. The real question is what is the cap compared to the market and historical caps. If you get a 1%-0.5% difference to the market you should grab it.
1 vote Thank Flag Link Sun Dec 9, 2012
Hi,
a general answer will not do...the best approach is to identify a specific property and evaluate its potential over the desired holding period (NOI, CAP Rate, IRR, etc.)

good luck!
BUYER CASH REBATE 50%-60% / SELLER DISCOUNT 50%

Flavio Tejada, MBA-Finance, Realtor, Broker/Owner
(415) 305-2958
Web Reference: http://americarealtyonline.com/
1 vote Thank Flag Link Sun Dec 9, 2012
Beyond the current income, the cap rate will also depend on the condition of the property and its potential, future rental potential, views, parking and specific desirability. Sometimes it can be as low as 2.5%. This is a great question for your agent.

Oggi Kashi - 415.690.3792 direct
Broker Associate, Paragon Real Estate Group CA DRE 01844627
All data from sources deemed reliable but subject to errors and omissions, and not warranted.
Web Reference: http://www.oggikashi.com
1 vote Thank Flag Link Sat Dec 8, 2012
I've seen cap rates as low as 2% and as high as 7%. The total picture is more important. How long you expect to hold the building and what is the future income potential of it. The neighborhood is important as is the prospect of improving the property. One of my clients paid $2M for 9 units and then sold it a year later for $4M. Good luck
0 votes Thank Flag Link Tue Dec 18, 2012
Cap rates aren't everything.

Investing requires some thought about the future. You can have a high cap rate but little upside potential; a low cap rate but outstanding upside potential. Maybe the cap rate is high, and there are expensive issues to deal with on the horizon.
0 votes Thank Flag Link Sun Dec 9, 2012
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