Thread: Real Estate
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      08-21-2019, 06:47 AM   #36
Mardio
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Look at Cap Rates in So. Cal. I see these real estate investor blogs talking about X number of doors that they've own because of leveraging with 10% cap rates or higher. I look at cap rates for rentals around here and am like... hmm.... Is appreciation what investors are using vs. cap rate?



A true way to evaluate any multi family is the cap rate. On a side note sellers can easily fudge the numbers to make the cap rate seem higher. Are all the expenses included? Are these real vacancy numbers? In my experience you have to do your own personal investigation in order to find out the true performance of the property.

So Cal has average cape rates of 4-6%, therefore yes... in my opinion investors are banking on appreciation (and rising rents) because the low cap rates make zero sense as an investment. You're looking at putting down anywhere from 30 to 60% just to break even. So you are parking a huge chunk of money for the long haul. It's not exactly the best way to leverage your money imo.

You probably noticed on your real estate investor blogs that most of them are out of state investors. To find 8 to 10% cap rates they have to look outside of the major metropolitan areas. It's not a bad plan because with those rates you can expect immediate cash flow if the property is in good shape. The downside is you have to rely on (and pay) a property management company and vacancy rates tend to be higher in these areas. That being said if I were just starting in multi family investing I would go this route. The key obviously is to find areas that have potential for future growth.
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