Which one is best for a 7-year IRR?
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I am focused on long-term returns like IRR or cash-on-cash for more than a 7-year period with comparable improvement opportunities. What factors should guide my decision between a prime location with a 4.2% cap rate and a neighboring area providing a 5.5% cap rate, considering the potential for varied property appreciation?
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If you prioritize reliable long-term appreciation in a blue-chip location, then a 4.2% cap rate makes sense.
But if maximum cash flow with potentially more aggressive value-add plays is your focus, then a 5.5% cap rate in the neighboring area could be more appealing.
A prime location offers stability and value retention, but a higher cap rate area gives you better cash flow, but the risk factor is high.