Think of the Cap rate for small multifamily units as interest you would earn on a CD. With this in mind a 5% cap rate seems to be pretty enticing. The reason being that you are talking relatively small amounts of down payment capital, $150,000 or less. In the case of the 9% rate you are talking more along the lines of $350,000 or more for a 30% down payment on a $1.1 million apartment building. The greater the investment the greater the risk, the higher the rewards need to be.
Jan 6, 2009