What is a Good Cap Rate
Depends! The industry standard varies across the Country. A good Capitalization rate for Western Colorado is probably around 9.5% for some income producing properties. The Cap Rate for Multi-family could be different than a commercial building. A business opportunity is very difficult to sell based on a cap rate. Business Opportunities are more about making a living, so the approach to value is different, even though the methods of calculating are the same. More important than a Cap Rate, is a different way to measure the quality of the income stream. There are several methods. The best measure is Common Sense. I look at the income and do a rental market study to see if the stated income is really in the market, under market or over market. Then I look at expenses and determine if they are also reasonable. From there the determination of Net Operating Income can be found, financing can be plugged in and then the 5 or more year forecast can be done. Basically, you want to cover expenses, have a safe cushion on income and make a profit. Like 9.5% more or less on your investment.
That old saying,"Well if you did this remodeling", then you could increase income, Or "rents are Low". It is a given, if the owner could increase rents, or rents are low, they would increase rents to generate more income. That is what generating income is about and that is why investors buy an income stream---to make a profit.