5 cap rate good
Although there may be regional variations, typically speaking, assets that have lower capitalization rates, such as 4-5%, would be class A or Class B assets.
But appreciation is always possible, but it depends on the market. Your rent and net operating income are more predictable than the market. Keep in mind that income from a building is not the only way you can make money in realty.
The bottom line: What is the best cap rate for multifamily properties? This question isn't answered by a single "good" cap rate. Many factors, including risk appetite and geographic location, play into whether or not a caprate rate is reasonable.
Although there may be regional variations, typically speaking, assets that have lower capitalization rates, such as 4-5%, would be class A or Class B assets.
Cap rate does not take appreciation into account. Multifamily properties are able to appreciate, and do. This has an impact on what constitutes a good multifamily property cap rate. Let's take San Francisco as an example. Why is it so low in cap rates? The land underneath is so highly valued that there's been some appreciation potential in the past, even though it has a low ROI.
A cap rate only represents a snapshot of the past. You are taking the current income and expenses. But, there is nothing in this formula that takes into account new renovations, different management, differences in marketing, and so on. These factors may make the cap rate rise or fall as the investment term progresses.
It is quite easy to calculate this metric. Calculating the cap rate requires you to divide an asset’s net operating income by its purchase cost.
Cap rates can vary by region. In NYC, the cap rate of 6.6% will apply to a property that is not in NYC. Real estate investors should remember that cities with higher populations tend to have lower cap rates. This means that they have lower capitalization rates.