Example of a low CAP RATE Property in Worcester
Case study on MLS.84 and 86 May street. 6 Units
These properties are in very good condition, having been mostly updated in 2017. There is plenty of parking available, with at least 11 spaces in winter and 15 in summer. The location is convenient, being close to various amenities:
Big Y
CVS
Bars and restaurants
The properties are located:
1.3 miles to Worcester State
3.1 miles to Assumption College
2 miles to Clark University
1.3 miles to WPI
The property currently houses 3 floors of Worcester State students and 3 floors of Assumption students. It should be very easy to continue renting these units and raise rents. It is estimated that rents can increase by about $600 a year, which translates to only $30 a month per student. The current rents are as follows:
4BR 2 BA: $2,300, $2,200, $2,200
3 BR 1 BA: $1,650, $1,650
2BR 1 BA: $1,300
The total monthly rent is $11,200, leading to an annual total of $134,400. The stated expenses are as follows:
Total expenses: $11,597
Taxes: $13,437
Management fees: $75 per door per month, totaling $5,400 per year
Thus, the total expenses amount to $30,434. The Net Operating Income (NOI) is calculated as follows:
NOI = $134,400 - $30,434 = $103,966
At a 6% capitalization rate (CAP), the property is valued at:
Value at 6 CAP = $1,732,767
At a 7% CAP, the property is valued at:
Value at 7 CAP = $1,485,229
Given the condition of the property, the ease of securing these rents, and the prime location, it is likely worth around $1.5 million or approximately $750,000 per building.
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