What is a good cap rate in 2021/2022?

analyzing a deal financing a project market research market updates real estate market Dec 02, 2021

What is a good cap rate? Our experience is primarily in the intermountain west. And we address this in the video. Cap rates can make or break a deal for investors, but context is always very important. What makes a real estate investment worth it to you?

Right now, black and white...I'll just call the shot... A good deal is probably a 5% cap rate.

That's a really good deal.

Chase Leavitt: If it's already performing and built.

Steve Olson: On the open market. You'd almost be like, what's the catch?

You're saying why is this at a five cap? And that's primarily in the intermountain west, where we work. A 5% cap rate in California would be astronomical.

Chase Leavitt: And we're not talking about the ghettos for lack of a better word. I think you can probably get a higher cap, but you're gonna deal with some other problems.

Sherida Zenger: You probably have an older property in that situation.

What is a good cap rate in today's market? (2022)

Steve Olson: When a market is consistently delivering a 4-5% cap rate, and you magically find a 7%, you should be suspicious. Markets are very efficient. You're not getting just the seven cap. There's some other stuff that's coming with that deal. That's why it's a seven.

In Texas, different parts of Texas, A five cap is probably average. But it depends. Are we in Lubbock? Are we in Plano? It's a big, big difference.

And then if you get into the upper Midwest, some of the rust belt. I mean, you should be expecting a six on a nice clean deal, if not better. So it really does. It really does depend. And cap rates fluctuate with the market. But that's, that's our black and white answer. Well, those are good deals.

Anything to elaborate on that? What do you think?

Sherida Zenger: I've seen stuff trading below a four cap right now. I mean, 3.7-3.9%, something like that.

Know the market and make sure you're comparing apples to apples because that's the, I guess one of the biggest issues that I have with investors. they say, Well, I can get six or seven caps over here. Then go invest over there if you can get that over there. Because you can't get that in the market that we're in.

Steve Olson: I mean, is that valuable based on the asset...based on the market.

Watch the rest of the episode here: 

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