What is good cap rate to shoot for?

Have you tried going to a cap rate of 10%-15%? Is it too high?

If you’re shooting from the hip on your cap rate, you’re in for trouble. Here’s an easy way to think about cap rates – a cap rate is the same as your cash on cash return if you were to buy the property with 100% cash. If you borrow money and leverage the property, make sure that your debt constant (% of loan paid down annually) is less than your cap rate. If you follow this basic principle, you will be in good shape.

I prefer to use what I call the “Target Cap Rate”. It’s a different calculation using the band of investment theory and it tells you exactly the “right” cap rate to use if you are borrowing money and have a cash on cash target.

I’ve posted more on this topic in a free pdf cap rates report on my website at www.creinvested.com.