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There are three main flavors of properties for investment. We will primarily discuss multifamily apartment buidings, however these concepts apply to other property types also, such as office buildings, retail strip centers, etc.
The areas with great theaters, restaurants an museums have cap rates of approximately 5 t0 6 %. They cost $50,000 to $100,000 per apartment unit. This investment has the most upside potential but lower cap rate and cash flow, therefore calculating Internal Rate of Return (IRR) will have substantial return and profit when sold.
The second flavor on the spectrum are income properties in lower income blue collar areas, which have cap rates of 8 to 9 and maybe 9.5% of you are lucky. Currently they are priced from $20,000 to $45,000 per apartment unit. We can scrub down the financial numbers with soap, water, and a brush. Actually, I can probably determine what it would cost to operate, without asking the seller for his operating expenses. (but we will ask). We get more cashflow from higher cap rate but less upside potential upon sale.
The IRR may be good from high annual cash flow and a modest upside potential.
The 3rd flavor is properties which need help with bad management and are in need of repair or remodeling. This is an opportunity to spend a nickel and make a dime by adding value throught better management and making money as general contractor or entrepreneur. The property may needs a resurfaced parking area, pedestrian gates, landscaping, and even wireless internet access (even for low income tenants). Knowledge of repair and remodeling and time to meet with repair contractors is required. Location is not as important since you make money for doing a good job and taking a risk.
Investments in office buildings, retail strip centers and other income producing products will likely adhere these principles.