07/08/2026
Years ago, I worked with a client who bought a fourplex in Midtown that had been converted into an office building.
On paper, the deal showed an 8.5% cap rate. But the real opportunity was not the cap rate. It was the building itself.
The property had good bones, a strong Midtown location, and a prior residential layout that still made sense. We converted the building back to residential use, improved the income stream, and increased the NOI by roughly 30%.
Here is the interesting part: the cap rate actually went down, from 8.5% to about 5%.
The lower cap rate reflected a better asset, stronger demand, more stable income, and a property the market valued more highly.
The lesson? A cap rate is useful, but it is only a starting point. The real opportunity is found in the fundamentals — location, use, income potential, demand, and what can realistically be done with the property.
Read more:
Sacramento commercial real estate cap rates explained — what the formula tells you, what it doesn't, and when to use a BOV vs. a formal appraisal.