Cap Rates

[Fernando]

Today I'd been looking at commercial buildings for sale seeing the range in cap rates.
When I saw In&Out building for sale, I got excited. I always wanted to own my favorite burger joint.
When I looked into the details, it's the only In&Out in Oakland which closed.
It was making money but the crime in the area was endangering customers and had to close.

 

[IlliniApp]

I would be interested to hear from those that are doing AG appraisals what the cap rates are for vacant farmland in their area. Here they are only 1.9-2.2 roughly.

 

[Gobears81]

There's a Jack In The Box for sale in Bay Area with a 4% cap rate.
Seems low.
What would cap rate be for such a tenant in your area?

I don't think that there are many Jack in the Box's in IL, at least near me, but quite a few sell in the 6% - 6.5% range. Some taking place for more, but those might have short lease terms or excessive rents.

I saw an apartment project sell for a 5.5% cap rate the other day. Seems like at a time of 7% mortgage rates and rents already increased quite a bit from a few years ago, there isn't much upside at those prices.

 

[Zoe]

I got this soliciting letter from a broker wanting me to list with him.
He mentioned about cap rates that its NOI/Purchase price.
Prior to mid-2023, investment properties were selling at cap rates between 4.25% to 5%.
Now most leased investments trade between 6.25% to 6.75% depending on tenant credit, lease term, and location.
And when higher the cap rate, the higher the risk.
I didn't considered that concept as much.
In Bay Area, cap rates were always low and that's because there's less risk in owning property here.

The terms of your lease and quality of your tenant are big also. If the cap rate is developed from market sales, you need similar comparable sales to extract from market. A cap rate can be developed if no similar sales have occurred. Like if you have a 10 year lease rented to Elon Musk. You would get a lower cap rate.

 

[Zoe]

I got this soliciting letter from a broker wanting me to list with him.
He mentioned about cap rates that its NOI/Purchase price.
Prior to mid-2023, investment properties were selling at cap rates between 4.25% to 5%.
Now most leased investments trade between 6.25% to 6.75% depending on tenant credit, lease term, and location.
And when higher the cap rate, the higher the risk.
I didn't considered that concept as much.
In Bay Area, cap rates were always low and that's because there's less risk in owning property here.

How much is broker wanting to list it for? Ask broker what they have to base their cap rate on?

 

[Zoe]

By the way, has the broker even seen your income/expense statements for last 3 years and rent roll?

I am trying to help you Fern. You take expensive trips. Don't trust just this broker.

Hi Fern, this is zoe. I can get bank to give you 4.25% cap rate if you will list with me. Okay Fern?

If you were not the great Fernando, I might not care.

 

[Zoe]

I got this soliciting letter from a broker wanting me to list with him.
He mentioned about cap rates that its NOI/Purchase price.
Prior to mid-2023, investment properties were selling at cap rates between 4.25% to 5%.
Now most leased investments trade between 6.25% to 6.75% depending on tenant credit, lease term, and location.
And when higher the cap rate, the higher the risk.
I didn't considered that concept as much.
In Bay Area, cap rates were always low and that's because there's less risk in owning property here.

Okay. If you give me your money, I will give my money away. Can we do that?

 

[Zoe]

I would like to meet your wife. I have pictured as a saint:

What Is Cap Rate? How to Calculate - Latitude Commercial

Cap rate, short for capitalization rate, is a key metric in commercial real estate that helps investors evaluate the potential return on...

latitudeco.com

Cap Rates Explained for Beginners (With Calculator) — The Cauble Group

Cap Rates are an extremely important factor in the buying and selling of commercial real estate. If you’re investing, this article will give you a strong grasp on this concept!

www.tylercauble.com

 

[Zoe]

Fed funds rate is very important if you have to build a cap rate. But you say market is hot where you live on similar properties. If market is that hot, you can go back like 5 years to help extrapolate cap rate if you have the data.

 

[Zoe]

Real property is really unique Fernando. Not two pieces of real property are identical. God made it that way. God calls the stars by name.

Get a grip.