we are considering buying a property that looked like it had a 10% cap. 42 units, 1.6 something, seller taking back 10%, but as we consider the property we would be mangaging it. In the cap of 10 he did not include a manag fee. If you include that, there is less profit. Seller will not come down can it still be considered a 10% cap when there is no fee for running it? Is it something others will expect when we sell to buy it and run it ?
Properties in our area are way pricey so 10% is incredible and we are not moving anytime soon. Thanks for imput.
You need to include your time, so, yes, you need to include some of your time (paid) into the equation.
In my experience as a commercial broker here in central florida, regardless if the pro-forma financial information we received on a property, we always inserted a line item for property management if the sellers did not provide one or handled the management themselves. The percentage was usually at 5 to 7% of the Gross rental income.
If your cap rate is still in the 7 to 8% range after this adjustment, just look at the current rental rates and see how close to the going market rate they are.
You can quickly and easily bump your cap rate by small rental rate increases on existing tenants who are renting on a month-to month basis and certainly on any new leases being signed.
Don’t know how big the complex is and if there is a possibility to add coin operated laundry facilities or not. If you have it already, bump the cost per load up a quarter. It adds up fast.
Hope this helps, take care and God bless.
Lake Mary, FL