Let's sum it up: What is a good multifamily cap rate? It is not possible to find a single "good cap rate real property" that can answer this question. There are many factors that influence whether or not a caprate is reasonable, such as your risk appetite and where you live.
This metric is fairly easy to calculate. To calculate the cap rate, divide the asset's net operational income (NOI), by its purchase price.
Nevertheless, appreciation is a theoretical possibility and could not occur depending on the market. You can be more certain about the rent you pay and your net operating income than the market. Real estate income isn't the only way to make money.
There are regional variations in cap rates. For a property in NYC, a cap rate of 6% is different than for one in rural areas. A good rule of thumb for real estate investors is that cap rate compression occurs in higher-populated cities. They also have lower average capitalization rates.
There are many regional variations but generally speaking, assets with lower capitalization rates like 4-5% would be classified as a class A or B asset.
Cap rate does not take appreciation into account. Multifamily properties can appreciate (and often do). This is what determines what makes a good multifamily cap rate. For example, the cap rate in San Francisco is so low. Because the land itself is so valuable, there has been a lot of appreciation potential over time, even though the ROI is low.
Cap rates are only snapshots of the future. Remember that the cap rate is based on current income and expenses. However, it does not account for new renovations, changes in management, marketing differences, etc. As the investment term progresses, these factors can cause a cap rate to rise or fall.
