Figure that the driving force in an acceptable CAP reate is going to be the interest rate you can get on your debt service, and the LTV you can get for financing. The higher the interest rate, the higher the CAP needs to be to make it cash flow. Likewise, the higher the LTV the higher the payment will be, but the less out of pocket or alternative financing (Hard Money, cash in or seller carry back) needed. What ever the monthly payment is (ideally at 100% financing) will be, you need a high enough CAP rate to compensate. The driving forsce for your desired CAP is going to be the debt service.
Dec 18, 2008