Maximize Cap Rates in Smaller Markets

Corridor Funding has been busy the last several years funding in all of the major MSAs throughout Texas and we continue to deploy capital weekly into Dallas Fort Worth, Houston, Austin, and San Antonio.  However we are noticing an impressive trend of value being acquired and renovated in smaller markets where our investors are able to refinance into one of Corridor Funding’s long term loans and recognize a higher cash flow than what they are seeing in the larger cities.  

What are cap rates?

The metric that is generally used to compare cash flows is called “cap rate” and the cap rate is simply determined by dividing the past 12 months of net operating income by the purchase price.  The higher the price the lower the cap rate and many investors are investing their capital in markets like Killeen, Belton, and other smaller markets where single family homes can be purchased and repaired for $130,000 to $150,000 and secure tenants that are “sticky” because they have families, want the lifestyle that a home offers, and many of the tenants earn a stable income from working at military bases, private prisons, or retired tenants who are on a fixed income.

Where are the highest cap rates?

March was very active in the Fort Hood, Killeen, and Belton area and we have a client with over 20 properties generating a 13% cap rate but what our client really enjoys is the exit financing we move him into after he’s purchased the homes and done the repairs and updates.  We have similar clients in smaller markets that are also enjoying double digit cap rates in San Angelo, Carrizo Springs, Brownwood, and Lampasas. We see these markets easily generating quality tenants signing leases for $900 to $1,200 and there is also opportunity with duplex and fourplex properties in these markets where updated quality homes tend to lease up quick!

These towns are fun and interesting with lots of history that tends to be preserved and appreciated.  One of my favorites is 200 E Central in Belton that was built in the 1880 and served the community as the local bank for almost 50 years, but today has been updated with three upstair lofts and street level offices that are ripe for retail and office opportunities.

Maximize Smaller Market Cap Rates

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