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Realty 22 – Simplifying Real Estate Investment

Whether you're a first-time investor or expanding your portfolio, Realty 22 makes real estate investing easy. With our expertise, we help you buy and sell with confidence, locating top properties, including duplexes, triplexes, quadplexes, and multi-unit apartments. We analyze CAP rates, property conditions, location, rentability, and maintenance to ensure smart investment decisions. Let us guide you toward maximizing your returns. Read below for more details!

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Key Factors in Evaluating Rental Investments

Key factors to consider include:

CAP Rate – Measures return on investment.
Condition – Impacts market value and future expenses.
Leases in Place – Stability of rental income.
Location – Desirability and demand.
Rentability – Ease of finding tenants.
Market & Personal Needs – Does it align with demand and/or your goals?

Let's explore how these factors work together for smarter investment decisions.

Understanding CAP Rate in Real Estate

CAP rate (Capitalization Rate) is the cash-on-cash return of a rental property investment. It is calculated as:

CAP Rate = Gross Yearly Rent/Sales price × 100

Example 1:

Property Price: $1,000,000
Gross Yearly Rent: $100,000

CAP = $100,000/$1,000,000 x 10 = 10% Gross Cap

Example 2:

Apartment A Rent: $1,225/month
Apartment B Rent: $2,150/month
Total Yearly Rent of two apartments:

(1,225+2,150)×12 = $40,500

Property Price: $620,000

CAP = $40,500/$620,000 = 6.53% Gross Cap

While the Cap rate of a property is only one of many other factors it plays an important roll in determining the average return in a market place. By taking the CAP rate of many properties in a certain area give you the picture of what you can expect as an average return and then try to exceed that when purchasing. When selling your property it is one of the main factor involved in determining the list price.

Property Condition & CAP Rate Impact

A property's condition significantly affects its market value and investment potential. Two properties with the same CAP rate (e.g., 6%) may not have equal value—one with an aging roof and heating system requires future repairs, reducing actual profits.

Options to Increase Value:

Make Repairs – Invest time and money to update the property.
Adjust the CAP Rate – Lowering the price will increase the market value to offset repair costs for the buyer.
Update the Rents – If you have room in the lease and feel it is time to raise the rents, this alone will bring the CAP rate up and keep the price the same.

Investment Tip: If the market average CAP rate for a duplex in Salt Lake City is 5%, a 4% CAP rate with poor condition may not be worth it. However, a 6% CAP in great condition could be a top investment opportunity. Considering condition vs. return is important before making a decision.

3 Types of Rental Property Investments

Group 1: New & Updated Properties

Description: Newer or recently renovated units in desirable locations.
Pros:
- Low maintenance costs for years.
- High rental income.
- Attractive, modern amenities.
Cons:
- Highest purchase price.
- May experience longer vacancies during rental market downturns due to higher rent prices.
Best For: Investors with larger budgets looking for long-term, low-maintenance income.

Group 2: Mid-Range Properties

Description: Standard properties with average rent for the area.
Pros:
- Lower vacancy risk due to affordable pricing.
- Ongoing demand in most markets.
- Minor repairs and updates manageable over time.
- More stable during market shifts.
Cons:
- May require some deferred maintenance.
- Not as high-end or lucrative as newer builds.
Best For: Most investors — this group offers a balanced approach between affordability, stability, and potential return.

Group 3: Value-Add or High CAP Rate Properties

Description: Properties with low rent, in need of repair, or located in less desirable areas.
Pros:
- Lower purchase price per unit.
- Highest CAP rates.
- Opportunity to add value through renovations or updated leases.
Cons:
- Often need immediate maintenance.
- Can have tenant turnover issues or be in less populated areas.
Best For: Investors who enjoy projects, renovations, and are looking for value-building opportunities or possible fix-and-flip strategies.

Which Group is Right for You?

Group 1: Ideal if you want low-maintenance and have a larger upfront investment.
Group 2: Great for most buyers – offers steady income and manageable upkeep.
Group 3: Best if you’re hands-on, want to build equity, or aim for higher returns despite the work involved.