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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Doughboy who wrote (16077)1/16/2004 6:16:05 AM
From: MicawberRead Replies (2) of 306849
 
Doughboy:

Nice response, but major faux pas:

The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties. Put simply, it is the net operating income divided by the sales price or value of a property expressed as a percentage. It is one of many financial tools used by investors, lenders and appraisers to establish a reasonable purchase price for a given investment property in a specific market.

the-home-improvement-web.com

What you are describing as the cap rate is really the inverse of the GRM (gross rent multiplier). If you are using gross rental income to figure your cap rates, you are REALLY overpaying.

By either of these measures, nothwithstanding the perma-bullish arguments of the broker/salesman on this thread, residential real estate is ridiculously overvalued. To posit otherwise is to ignore historical valuations, and to ignore the effect of 40 year low interest rates. I especially love the recommendation that we all heed the analyses of appraisers, the implication being that they do this for a living and therefore are the experts. Yeah. Getting a fair, unbiased opinion from an appraiser working for a lender is like looking for an unbiased opinion from Sean Hannity. Or a stock recommendation from Henry Blodgett...
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