Understanding Multifamily Lingo : “Cap Rate”

There is one thing that sets the multifamily investing business apart from all others. That one thing is 'The Power of the Cap Rate”. Also, check out this fifteen minute presentation from Charles Dobens, The Multifamily Attorney, to find out exactly what he means:  The Power of Cap Rate

We all know what cap rate is.

NOI, cap rate and price - all three variables fit together. 

You need to understand how the cap rate works. A property that has a higher cap rate is less valuable than a property with a lower cap rate! 

Everybody else thinks, "Oh, a 10-cap is better than a four-cap." No! Just do the math. Remember, a one dollar increase on a four-cap is a 25% while a one dollar increase on a 10-cap, I think it's $12.67. Well, $16.67. And on six-cap, it's like 12 bucks. 

That is why we go for the more higher quality properties. That's why the insurance companies, the pension funds, the big investors who build - they go with a Class A property, because of how they can force the appreciation.