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Strategies & Market Trends : John Pitera's Market Laboratory
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To: infopleez who wrote (6281)6/11/2002 2:08:46 AM
From: Elroy Jetson  Read Replies (1) of 33421
 
Real Estate conditions vary widely by region, but general principles apply in all areas. What is the Cap rate or Gross Rent Multiplier on your buildings compared to when you purchased them? If you follow this, it becomes clear that buyers are willing to pay far more for the same rent stream than in previous years - even in relation current interest rates. Would you buy your building at the current cap rate?

Most smart income property owners in Los Angeles are selling, at least a portion of their properties, primarily to first time owners.

If we do get increased inflation, rents will rise - but at the same time higher inflation will mean higher mortgage rates and thus lower prices paid for that income stream. Compared to eight years ago, people are paying twice as much, or more, for each dollar of rental income. If the price paid for each rental dollar falls to where it was eight years ago, rents will have to more than double to maintain a stable building value. That would have to be some hefty inflation to accomplish that.

Yet in addition, low mortgage rates have led to building more housing stock resulting in declining rent rates in Los Angeles - and around the world. Read the London Times or the Sydney Morning Herald.

Conditions in your area may be different. But you will only know by following the current Cap rate or GRM for your buildings.
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