During the 2nd quarter of 2018 class A apartment properties have been selling at Cap Rates of about 4.6% and class B apartment properties have been selling at Cap Rates around 4.95% with a 2nd quarter average of about 4.8%.
Excalibur has been able to find several houses for investor buyers in Atlanta with Cap Rates of 5% to 6%. But that is only part of the reason to buy rental houses.
If you buy apartments today, you will sell the property later based on the market Cap Rate and the property’s NOI. When you sell your rental house, the sales price is not likely to be impacted by the Cap Rate. Your buyer is more likely to be an owner-occupant who is more interested in the quality of the schools, the commute to work, and other area amenities. Today housing prices are rising faster than inflation. And the Atlanta market, in particular, is promising better than average growth due to all the businesses relocating here. Buy early and enjoy that ride.
This (home price appreciation) is why investors need to compare IRRs, not Cap Rates, when shopping for rental houses. The IRR estimate will include the estimated appreciation for the property. Cap Rates are only comparing the cash flows (Net Operating Income divided by investment) of comparable properties.
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