Is small multifamily in the Inland Empire actually trading at those cap rates or are the listings just optimistic

18 percent expense ratio on a fourplex is a fantasy number, full stop. I run 42 to 45 on my Cincinnati quads once you put real property management, reserves, and vacancy in there, and those markets are cheaper to maintain than IE concrete-slab builds with HOA drama baked in.

The buyers accepting 4.2 are mostly 1031 money chasing a deadline. They are not modeling year two, they are modeling "I had to deploy by November."

What I'd want to know before I touched Fontana at 589k: what are the actual current leases and when do they roll, because if two of four units are month-to-month you have a very different risk profile than the rent roll suggests.

Your math is correct and the gap is structural, not a modeling error on your part.

The 18 percent expense ratio is the tell. Sellers in that market routinely publish expense loads that exclude property management (even when they use one), ignore cap ex entirely, use insurance figures from three years ago, and sometimes net out utilities the tenant technically pays but the owner backstops. A fourplex running zero vacancy assumption and 18 percent expenses is not a real operating picture. Thirty-five to forty percent of gross is a more defensible starting point for a Fontana fourplex where you are not self-managing, and your 38 gets you there.

The assumption doing the most work in the listed cap rate on that Fontana deal is almost certainly pro forma rent, not actuals. If the rent roll shows anything below current market, sellers will often gross it up to "market" and call it the income figure. Ask for twelve months of bank statements tied to rent deposits. That number is not negotiable and it will not lie.

On whether buyers are accepting 4.2 and banking on appreciation: yes, some are. The Inland Empire has had meaningful rent growth over the past several years and buyers expecting that to continue will accept a compressed going-in yield. Whether that thesis holds into 2027 is a separate question, and one worth being deliberate about before you underwrite appreciation into a deal that does not cash flow on actuals.

The risk you have not mentioned is the financing assumption. If the deal is being quoted at a cap rate without specifying what the seller used as a discount rate or terminal assumption, and you are buying with debt at current rates, your debt service coverage on a 4.2 cap is going to be uncomfortable. Confirm your DSCR scenario in writing with your lender before you get attached to any specific asset.

What expense categories is the seller actually itemizing in their pro forma when you request the full breakdown?