A listing sheet is a sales document. It is built to make a property look its best, and the numbers on it are usually the seller’s numbers. Before you trust a cap rate, check what it leaves out. These six items move the math more than anything else on the page.
1. Taxes at your price, not the seller’s
The tax figure on a listing is the current owner’s bill, based on the current assessment. A sale, a town-wide revaluation or a grievance outcome can change it. Ask when the property was last assessed and what the assessment is as a share of market value, then estimate the bill at the price you are actually paying.
2. Insurance at today’s rates
Premiums for older multifamily buildings have risen sharply in recent years. Last year’s premium is not a quote. Get a real quote for your coverage before you rely on the number.
3. Rental registration and inspections
Many municipalities require rental units to be registered or inspected, with fees and compliance work attached. In the City of Kingston, some buildings are also covered by rent stabilization, which limits how rents can change. Confirm the status of every unit before you underwrite rent growth.
4. Management
A pro forma that shows no management fee assumes the owner works for free. Whether you hire a manager or do it yourself, the time has a cost. Underwriters typically budget a percentage of collected rent.
5. Vacancy and turnover
Zero vacancy is an assumption, not a forecast. Every unit turns eventually, and turnover brings lost rent, cleaning, painting and leasing costs.
6. Reserves and near-term capital needs
The age of the roof, the boiler, the windows and the appliances tells you what you will be spending in the next few years. A building that needs a new heating plant is worth less than one that does not, and the listing will rarely say so. Budget annual reserves per unit and price in any major item that is near the end of its life.
Run the X-Ray
Our Listing X-Ray takes the figures a listing advertises and adds back each of these costs, so you can see the advertised cap rate next to a realistic one, and the price that would actually deliver the return being advertised. Or send us the listing and we will X-Ray it for you.
General information, not legal, tax or investment advice. Verify every figure during due diligence.