Cap rate expectations for a 12-unit in a secondary market

Category: Multifamily

1 replies

Original post

Looking at a 12-unit apartment building in a secondary market with a 7.2% cap rate. Seller says it's under market rent by about 15%. Does that seem like a reasonable spread to justify the risk, or should I be pushing for a better entry price?

Reply by Marcus Prescott

We saw something similar on a 10-unit last quarter and pushed the seller down about half a point instead. If the in-place rents really are 15% under market, I'd use that as leverage to negotiate price rather than just accepting the cap rate as quoted. Have you verified the rent comps yourself or is that just the seller's number?