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Some people use it as a quick method of checking whether a price is even close to being in line.
It's a very inexact tool because it does not take expenses or debt or cash flow or resale or taxes into consideration. Second, don't use cap rates on anything below four units. Cap rate is a tool to be used with income streams, and residential properties below four units fluctuate too widely in income for it to be a valid measure. Therefore it doesn't tell the whole story either. The cap rate is the return you would receive if the deal were bought for all cash.