Re: Making an offer on a SFR
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Thanks DC. Based on what you are saying shouldn't this place be worth closer to $250 - 300K if you were looking for 7.5% cap rate?
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Well, I want a 7.5% cap rate because I'm cheap and want a positive cash flow deal so good I can't screw it up. There is nothing golden about 7.5%. It all depends upon what you can reasonably expect in appreciation. If a property appreciates 10% per year and you can afford to fund negative cash flow, paying even a 2.5% cap rate starts to make sense. That's how lots of these prices got this way and why I think they are due for more correcting.
The only other way around it is if you can increase rents. I had a friend pay a cap rate that must have been around 5% on an old home. He knew it was zoned commercial, rehabbed it, and rented it commercially for about 4x it's previous rent, and made an absolute killing.
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