I am evaluating a multifamily property in a safe and high income town in NJ. What cap ratio should I assume? I checked the historical averages but the macro situation keeps changing. What’s a good mental model for cap ratios?

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Probably 3 cap

Highly stable markets have very low cap rates. I bet 3 to 4 cap is about on par.

Ask a realtor to check costar rates for you. Can get it that way for free.

I prefer to actually use hurdle rates instead of cap rates. Cap rates are set by the market, but I price based on what return I’d like to receive. You can compare that to market caps, but it is—for property you appear to be looking at (stable, turnkey ready to rent)—more of a gauge to see your returns if you get it at that price. Nice to compare it to the market caps, but ultimately the price you’re willing to pay will depend on the return you want or can live with.

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