What are some of the most ludicrous “multipliers” or cap rate’s you have seen?
My most recent is a storage facility in Texas.  3 million asking, cap rate of 2.2.  Almost a 34x multiplier on net.

I’m attempting to get them down to something reasonable, but it’s very unlikely.

No value add other than raise rent.  Facility is 93% full.

Edit: it’s actually 44x on NET.
[{"id": "i24l336", "text": "Hopefully no FOMO idiot will take the bait and the seller can gag on this POS. This is the best example of \u201cstupid\u201d I\u2019ve seen yet.", "replies": [{"id": "i24m3d7", "text": "Yeah my brokers asked me if it was a joke when I asked him about it.  Then I sent him the listing and he couldn\u2019t believe it.\n\nEven\u201dproforma\u201d puts it at 4.2%\n\nI\u2019m not asking for 15% here but what in the world.  I could expect to see 10-15x for this place, really any storage facility, but 33 is out of this world.\n\nI agree and REALLY hope no one buys this place, maybe \u201cdeals\u201d like this will slowly bring the market back to reasonable.", "replies": [{"id": "i26kfzn", "text": "There are two ways to justify this. 1. Rapidly rising rents. 10% annual rent growth will make that deal look alot more attractive. Probably unlikely in self storage. I saw this years ago with industrial rents in San Francisco.\n2. Covered land play. If the zoning allows for redevelopment into retail, apartments, or office then this could be a steal on a land cost basis for a developer. I see this frequently with low cap rates on mobile home parks to be redeveloped.", "replies": [{"id": "i290cv6", "text": "to your points: (1) there must be some rising rates since they have a proforma bringing it to a 4.2 cap (not sure how reliable that is). (2) if this is the case... then multipliers and cap rates go out the window and you are just valuing it based on the land, aren't you? maybe this opportunity has dev upside and the income it is producing is irrelevant since it is highest and best use? I have sold a property sub 1 cap and would get people calling me saying this is ridiculous... but wasn't targeting investors but developers.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i24qmy7", "text": "Cap rates that low are typically RE-dev sites. Are you sure it\u2019s not RE-dev? But yea, 2.2 on especially a self-storage site is absurd.", "replies": [{"id": "i24rw68", "text": "It is not, the site has an extra 1 acre you can develop, but 1 acre is not enough to garner that type of asking price.\n\nIt\u2019s in a residential, high traffic, fully developed area.  I want to offer them something, but want to have my numbers right so when they tell me I\u2019m crazy, I can respond with how crazy they are.\n\nThe opportunity would be good, if it was reasonable.", "replies": [{"id": "i24tqch", "text": "Value the land then. You said it\u2019s in a residential area - they maybe valuing it as a multifamily development. Demo the whole thing and build housing. It\u2019s happening in my area a lot.", "replies": [{"id": "i24usv6", "text": "Fair point, maybe so.  Good thing to consider", "replies": [{"id": "i24z5ve", "text": "Seems like the only possible rational explanation. MF builders are spending like a.. MF in order to get developments.", "replies": [], "depth": 5}, {"id": "i251xdp", "text": "Appraiser here. The question is how many additional storage units could you put on the vacant land. If it\u2019s a lot, that can really bring down cap rate. Not sure if it would bring it down that much, but room to build additional units is extremely desirable in my experience", "replies": [{"id": "i252brt", "text": "Thanks, that\u2019s something to know for me.", "replies": [], "depth": 6}, {"id": "i28b4na", "text": "Excess land will not change a cap rate.  That makes no sense from an appraisal standpoint.", "replies": [{"id": "i28t7eh", "text": "yes it can", "replies": [{"id": "i29b3kn", "text": "How?", "replies": [{"id": "i29dh6m", "text": "several different ways one example... but lets say you have 15 acres what ever zoning that allows for 30% coverage and the only building is 65,340 sf single story which is producing income and the remainder is developable. You can not just apply a market cap rate that would be used for other 5 acre lots with the same building size max coverage because this would not account for the value of the excess land. so appraisers will back of the excess land of a site, then apply a cap rate to the income-producing portion, and add back the land to the purchase price at fair market value which would effectively lower the cap rate", "replies": [{"id": "i29n5o4", "text": "&gt;and add back the land to the purchase price at fair market value which would effectively lower the cap rate\n\nNo, you used a market cap rate to value the property without the excess land.  That amount at that cap rate would remain and the value of the excess land would not be used to calculate a cap rate comp.", "replies": [{"id": "i29ojvd", "text": "yeah the value of the excess land would be removed or added from/to the sale or asking price from there", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "i29e7u7", "text": "alternatively.. say you had a 40-year land lease and developed a building that you rented out and decided to sell. the building would produce an income and appraisers would apply the cap rate and then back of the value of the land. this would effectively raise the cap rate because the excess land is not owned by the vendor.", "replies": [{"id": "i2bw3gb", "text": "&gt; appraisers would apply the cap rate and then back of the value of the land. this would effectively raise the cap rate\n\nNo, this also would not change the cap rate.  Try calculating and you will see where you went wrong.", "replies": [{"id": "i2bz7ke", "text": "Sure a land lease being sold with an office building on it producing 100,000 in income. Say the prevailing market cap rate free and clear for office building and land is a 6 cap. This would value building and land at 1,666,666 via the income approach. They would then back off say 300,000 for the land by pulling land with similar use associated to it arriving at 1,366,666 effectively raising the cap rate to 7.3", "replies": [{"id": "i2drgy1", "text": "&gt; effectively raising the cap rate to 7.3\n\nThe 7.3% is not a cap rate.  Cap rate is used to measure the value of NOI.  V=i/r  $1,666,666=$100,000/6%  That is the value of the NOI!  The 7.3% is not a cap rate.\n\nYou do not want your cap rate to increase.  A 6% cap rate means your NOI is worth $16.67 per dollar.  at a 7.3 cap rare your NOI lost value to ONLY $13.70!!  That's not a good way to invest.", "replies": [{"id": "i2fe1no", "text": "Dude the cap rate is 7.3 after the land adjustment. You are saying you would value the land in a land lease purchase? That is a terrible way to invest. Idk how you are this stubborn  you are disagreeing with an appraiser from early in the thread. This is not a secret or debate. Pick up the phone ask any accredited appraiser if excess land can impact cap rates they will tell you yes.", "replies": [{"id": "i2gp6p8", "text": "&gt;ask any accredited appraiser if excess land can impact cap rates they will tell you yes.\n\nWell they would be wrong and when I would ask them how excess land changes the cap rate they would not be able to explain.\n\n1. You stated that the NOI was $100,000.\n2. You stated that the market cap rate was 6%.\n3. The formula is V=i/r\n4. $1,666,667=$100,000/6%\n5. The value of the NOI is $1,666,667\n6. What ever you pay above that is the alue of the excess land.\n7. **There is no 7.3% cap rate!**", "replies": [{"id": "i6rkb5y", "text": "there is 7.3 cap rate because when that sale is closed it was closed at 7.3 cap because it was added after. the overall transaction is recorded as a 7.3 cap and not a 6 cap plus the value of the land. the formula becomes V=i/r excluding the value of excess land-- so what it actually is v=i/r+value of excess land which effectively increases the cap rate on a comp", "replies": [{"id": "i6t8e5v", "text": "&gt;so what it actually is **v=i/r+value** of excess land which effectively increases the cap rate on a comp\n\nSo \n\nValue=$100,000/6%(MARKRT CAP RATE) PLUS the Value of the excess land.\n\nSee, there is no 7.3% cap rate.  The 6% measures the NOI and THEN you can add the value of the excess land to get a price.  BUT then you cannot use that sales price to calculate a cap rate because that value represents the purchase price of the NOI **AND** the excess land.  This is basic appraisal.", "replies": [], "depth": 16}], "depth": 15}], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "i2a7brq", "text": "I'm saying that for the mini-storage listing that OP was talking about, the cap rate is so low because the listing includes the value of the additional land. They should deduct the value of this land from the listing price and recalculate the cap rate to see if it is reasonable.\n\nWhenever I see a sales comp that has an unusually low cap rate, one of the first things I check is to see if excess or surplus land was included in the deal. Hope that helps.", "replies": [{"id": "i2bvu7a", "text": "&gt;the cap rate is so low because the listing includes the value of the additional land. \n\nBut that is a CRAP rate at best.  Cap rates are used to value comparable properties.  The \"asking\" cap rate is just that, \"asking\" based on the sellers NOI calculation.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}, {"id": "i6tlg6h", "text": "&gt;Appraiser here. The question is how many additional storage units could you put on the vacant land. If it\u2019s a lot, **that can really bring down cap rate.**\n\nHow?", "replies": [], "depth": 6}], "depth": 5}, {"id": "i27oit0", "text": "I am a engineer/developer. I may be able to help you take a big picture look at the property for the highest and best use. Send me a DM.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i24r7o6", "text": "I got quoted a 3.5 cap on a 40 unit Multifamily building in a tertiary city with rent control", "replies": [{"id": "i24ryf9", "text": "SIGN ME RIGHT UP, TAKE MY MONEY!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i24t3g2", "text": "Secondary market. Don\u2019t remember specifically but 200-ish units, 100+m deal traded for a 2.4 cap.", "replies": [{"id": "i24t59w", "text": "Holy moly", "replies": [{"id": "i24zste", "text": "Was a value-add component though", "replies": [{"id": "i2506q4", "text": "Still, that\u2019s a tough sell.  This has nothing but the option to increase rents.  They showed their numbers up to Feb 28, so they\u2019re almost fully booked.  Easily well below market average, but again, the only thing I can do is increase rent.", "replies": [{"id": "i250wko", "text": "Sadly wasn\u2019t a tough sell, it ran because we BOV\u2019d it at like 3.5.\n\nWell atleast your/they are below market so you have room to grow rents. How does rental growth look like for this area/product?", "replies": [{"id": "i2529fa", "text": "They\u2019ve steadily increased for the last 3 years which is a good sign, rent prices stayed the same but they filled it up.", "replies": [], "depth": 6}, {"id": "i259btk", "text": "BOV'd?", "replies": [{"id": "i25e89h", "text": "Broker opinion of value; I work at a large CRE firm for institutional brokers", "replies": [{"id": "i25h5cm", "text": "Ah thanks!", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i28eqzz", "text": "Greeley?  Aurora?  The Springs?", "replies": [{"id": "i28jndk", "text": "Denver Metro, would have to look at our tracker to tell you exactly", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i24ukqr", "text": "For the folks who have been doing this at least 10 years, does anyone think this isnt about to crash?  Its crazy", "replies": [{"id": "i24uqok", "text": "I\u2019m less than 10, and I don\u2019t know about \u201ccrash\u201d but I do believe this can not be sustained.", "replies": [], "depth": 2}, {"id": "i25kri4", "text": "It\u2019s insane. I\u2019m at 10 years as a property tax consultant, when I started we were arguing 6.5% cap rates up to 7 or 7.5%, now a  warehouse just sold in the mid 3\u2019s.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i24w3qx", "text": "I worked on some RV/boat storage facilities (6). Buyer was paying 2-4% cap rates on in-place NOI. Their plan was to increase rents substantially and add covered parking. They said they valued them at a 5% cap on proforma.", "replies": [], "depth": 1}, {"id": "i24wsog", "text": "Let\u2019s not forget hard money day 1, shortened due diligence periods and increasing interest rates. Value add multifamily\u2026\n\nHad my umptheenth LOI turned down today for a couple groups that were willing to pay 10% more and don\u2019t care about cashflow for the first 3 years - they see buying at these prices as a hedge against inflation.", "replies": [{"id": "i24y6qj", "text": "That will work, but only for a little bit.  Inflation won\u2019t last forever.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i24x72w", "text": "Not sure if I\u2019ve ever seen a listed deal with a cap rate below the 10-year US Treasury. Wild. \n\nAlso, 2.2 cap rate would be a 45.45 multiplier, or am I missing something here?", "replies": [{"id": "i24y3uj", "text": "You are correct, it\u2019s actually worse when I went back. Year 1 net is 67k, so after debt you lose like 28k on the year.\n\nI also just realized you\u2019re not even going to get a bank to finance this based on what they\u2019re asking.", "replies": [{"id": "i24yngg", "text": "Well I also realized after posting that you may have been talking Gross Rent Multiples, where I am talking multiples of NOI. \n\nTell the buyer to lock in a sweet 4.4% mortgage and achieve 2:1 negative leverage. What a world!", "replies": [{"id": "i24z5tc", "text": "Nah, I\u2019m referring only to net.  The rest are important, but if there\u2019s not enough leftover to even pay the bills, why even consider.\n\nI\u2019d be interested to find out what, if any, kinds of offers they\u2019ve gotten.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2534gr", "text": "Appraiser here - seem some wild stuff. A lot of 1031 exchange stuff where buyer doesnt even care what the history of performance has been. Not cap rate related, but recently did an appraisal where the seller asked if I wanted to see the tax records where they report only 50% of the income or the actual books", "replies": [], "depth": 1}, {"id": "i254wtl", "text": "It seems pretty uninteresting to me to share stupid sellers asking for stupid offers. What\u2019s more interesting to me is the stupid buyers who pay those stupid asking prices \ud83d\ude02", "replies": [], "depth": 1}, {"id": "i258ffu", "text": "Asking price isn't a transaction, so hard to compare this to an actual deal vs a hail Mary by an owner.  If they're well below market rents a cap rate doesn't tell the story.  1/2 the industrial in SoCal would trade in the 2s on a trailing 12 cap rate.  Could be a mom and pop that a good manager takes a bunch of costs out due to scale, solar panels, etc.", "replies": [], "depth": 1}, {"id": "i25a4j8", "text": "And here I am trying to sell my motel at a 7% with no bites yet!", "replies": [], "depth": 1}, {"id": "i25dzo3", "text": "It\u2019s self storage or some sort of commercial storage that could be converted to proper warehouse industrial? How does the seller/broker try to justify it?", "replies": [], "depth": 1}, {"id": "i25khcx", "text": "Can somebody ELI5 (or maybe ELI15) what's being said here? My family recently bought some commercial real estate and I live in Texas and I'm trying to understand more about the industry.", "replies": [{"id": "i26d7nw", "text": "The short version is the \u201ccap rate\u201d is the ratio of your NET income versus what it\u2019s being sold for.  In this case, my sellers are asking for 3 million dollars, but have already proven the business only NETs 67,500 dollars (tax returns, statements, etc).  \n\nSo 67,500 / 3 million dollars is 2.25% cap rate\n\nThe multiplier is the math they used to get there.  In my experience, and this market, 10-13, maybe even 15 times the NET would be common to get to asking price.  Which SHOULD mean this is worth 670k - 1.1 mil (roughly) to an investor.  Instead, they threw all that out the window and are looking for chumps willing to pay roughly 44x the NET profits.\n\n67,500 x 44 is 3 million dollars.  So they are asking for 44x multiplier.  \n\nFactor in debt service, which is paid out of net, and you have to pay 190,056 per year just to service the debt.  So the day you buy this, you\u2019re upside down, and will lose about 130k per year.\n\nNo bank will finance this.  The sellers are likely looking for a large 1031, and the buyer just needs to park cash.  \n\nHope this helps", "replies": [{"id": "i27a5mj", "text": "Ohhhh okay, I understand. Thanks for the detailed explanation. Definitely understand what the seller is trying to do now.", "replies": [{"id": "i27ffw0", "text": "Sure no problem, glad I could help.", "replies": [{"id": "i28yzeg", "text": "the multiplier isn't the math to get there though. Depending on the upside as well there could very well be financing.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "i2t4lv3", "text": "I'm not in this industry, but is it not a common occurrence to see a high asking price because the seller has been under-reporting the actual revenue generated but then they include the value of that hidden revenue when determining their listing price?", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i25losm", "text": "Question what does 34x multiplier mean. How does the math work for that?", "replies": [{"id": "i26ddds", "text": "It\u2019s actually higher, it\u2019s closer to 44x.  \n\n3 mil/67,500 (recorded net per their books) = 44x, lr 2.25 cap\n\nI left a detailed comment on someone else asking the same on this thread.", "replies": [], "depth": 2}, {"id": "i2ivzzo", "text": "it is 1/caprate or 1/.022 in this case for 45x. it is essentially how many times the annual net income the property is being priced at.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i270hyp", "text": "I see 2.x in Manhattan on the regular.", "replies": [], "depth": 1}, {"id": "i277u73", "text": "I saw 3.3 cap rate on apartments on Facebook the other day and they wanted a 3% buyer fee on top of that", "replies": [], "depth": 1}, {"id": "i279erc", "text": "I've seen 3.x rates in California on apartments rarely. I guess they are for institutional investors looking for a quick exchange. Finally starting to see cap rates creep up. For awhile everything was under 6, but now I'm seeing 6.x cap rates on office buildings on loopnet", "replies": [], "depth": 1}, {"id": "i28b46s", "text": "I\u2019m new here can someone explain what any of this means?", "replies": [{"id": "i28d5v3", "text": "Copied from my earlier post:\n\n\nThe short version is the \u201ccap rate\u201d is the ratio of your NET income versus what it\u2019s being sold for.  In this case, my sellers are asking for 3 million dollars, but have already proven the business only NETs 67,500 dollars (tax returns, statements, etc).\n\nSo 67,500 / 3 million dollars is 2.25% cap rate\n\nThe multiplier is the math they used to get there.  In my experience, and this market, 10-13, maybe even 15 times the NET would be common to get to asking price.  Which SHOULD mean this is worth 670k - 1.1 mil (roughly) to an investor.  Instead, they threw all that out the window and are looking for chumps willing to pay roughly 44x the NET profits.\n\n67,500 x 44 is 3 million dollars.  So they are asking for 44x multiplier.\n\nFactor in debt service, which is paid out of net, and you have to pay 190,056 per year just to service the debt.  So the day you buy this, you\u2019re upside down, and will lose about 130k per year.\n\nNo bank will finance this.  The sellers are likely looking for a large 1031, and the buyer just needs to park cash.\n\nHope this helps", "replies": [{"id": "i28t4on", "text": "Great explanation thanks haha", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2dv97v", "text": "The 2.2% cap rate does not exist.  You need 2 valuations here, one for the real estate and one for the business.", "replies": [], "depth": 1}, {"id": "i61tlr5", "text": "How about todays investors who still go by old ways thinking that things never change? \nBidding 8 x\u2019s yearly income?\nMaybe on Rent stabilized buildings, but today\nThese buildings are a money pit and should not be bought. \nThe best investment today is the unique properties that are totally detached, have parking and tenants paying today\u2019s going rents. \nWorth 15 x\u2019s income\nJim Turano", "replies": [], "depth": 1}]