- Is it better to build and sell the property for immediate profit, or build and hold the property for long-term revenue flow?
- Who is buying apartments today?
- Finalise Decision to Hold or Sell
- Structuring Transactions
- Redeployment of Profits
- Capital Gains Tax Mitigation
New Apartment Cap Rate
- Is the building sold full, with two years of stable operating history?
- Has the building just been leased up?
- Is the building built and vacant?
- Or is it just a piece of land with a vision?
What Determines the Cap Rate?
- Occupancy level and length of stabilization.
- Location. Vancouver has some of the lowest cap rates in the country and Atlantic Canada has some of the highest.
- Construction type. Assuming equal net operating income (NOI), a concrete building should sell for a lower cap rate than a frame building because it lasts longer.
- Rent levels. New construction should be leased at or very near market rental rates. Meaning, the new buyer can’t raise the rents more than normal rental inflation.
- Lower Capital Expenditures. Since the building is brand new, there should be virtually no capital expenditures for ten years and maintenance and repair should be lower when compared to an older building. This positively affects the NOI.