Capitalization Rate (Cap Rate)
QUESTION:
Does HousingAlerts tell or show the Cap Rate / Market Cap Rate for Apartment buildings?
ANSWER:
HousingAlerts can and should be used to SET the risk adjusted Cap Rate so you can compare deals/properties in different markets on an apples-to-apples (risk adjusted) basis.
For example, a property in a crummy market should sell for less (higher Cap rate) than the ‘same’ property in a hot appreciating market.
How do you adjust cap rates so you can evaluate properties on a risk-adjusted basis if they’re in different markets?
A quick and easy way to evaluate Market Risk (CAP rate) for similar properties in different markets is to use the HousingAlerts “Master Score (Percentile)” at the MSA/City level.
The Hot Market Finder tool at
https://www.housingalerts.com/members/market-finder/local-radar/ ranks each city based on its Master Score.
The higher the Master Score ranking, the more likely that property will generate better returns RELATIVE to a similar property in a weaker market.
Markets with a higher Master Score are worth more and should command a higher price (lower CAP rate) than the same property in a weaker, riskier market.
A LOW master score means the opposite... it’s a RISKIER market. You should require a higher going-in CAP rate (lower purchase price) for the same type of property but in a riskier market.
