I’m wondering what people general use for the basic rules of thumb for cap rates in various markets, for your standard 2-star basic park, city water city sewer, mostly TOH. Lets say 60-150 lots.
- Primary market, Dallas / Fort Worth for example. I’d say 5.5-6.25% CAP
- Secondary market: 150+ population, 130+ median home price. I’d say 6.25-7.5%
- Tertiary market: 100-150k population, 100-130 median home price, I’d say 6.5-8%
This is what I’d see listed on brokers websites. Let me know A) if you disagree with my definitions of the markets B) what CAP rates you think they are
and finally C) what your prediction is on where CAP rates will be in the coming few years. Myself, I can only assume the go up a bit if there is a recession, but how much? The begs the question, should we underwrite deals with an exit at a higher CAP rate.
Let me know your thoughts.