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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (27461)	2/24/2005 10:58:53 PM
From: John Vosilla	Read Replies (1) \| Respond to of 306849

But a lot of people are living in a smaller place than what they want to be, but like Suma said, many people can't move. So, after a decade of flat prices, we eventually could see luxury uptick first as people move up. But by then, it's equally possible the boomers could begin one of the largest Demographic trends in American history - the great wave of retirees, putting downward pressure on luxury homes as people downsize. But here's a thought: what are the odds boomers surprise all of us and keep working past the normal retirement age? Demographically speaking, boomers have a great reputation for working hard and enjoying work. Maybe the trend will be towards low maintenance modest sized semi-luxury condos, townhomes and zero lot single family. Boomers in general will travel and eat out a lot more so than prior generations. As little housework and yardwork as possible. I think the oversized, very expensive homes on big lots in way out in the burbs will have the greatest oversupply. What surprises many from the northeast who come down to the sunbelt to visit is how much living space we seem to have here compared to up there. I'm sure it is that way in most newer high growth areas that were reasonably priced prior to this recent bubble. CAP = net operating income/market value

To: Amy J who wrote (27461)	2/25/2005 4:05:39 PM
From: David Jones	Respond to of 306849

CAP: invest-2win.com The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties. Put simply, the cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage. Investors, lenders and appraisers use cap rates to estimate the purchase price for different types of income producing properties. A market cap rate is determined by evaluating the financial data of similar properties which have recently sold in a specific market. It provides a more reliable estimate of value than a market Gross Rent Multiplier since the cap rate calculation utilizes more of a properties financial detail. The GRM calculation only considers a properties selling price and gross rents. The Cap Rate calculation incorporates a properties selling price, gross rents, non rental income, vacancy amount and operating expenses thus providing a more reliable estimate of value. If we have a seller and an interested buyer for particular piece of income property, the seller is trying to get the highest price for the property or sell at the lowest cap rate possible. The buyer is trying to purchase the property at the lowest price possible which translates into a higher cap rate. The lower the selling price the higher the cap rate. The higher the selling price, the lower the cap rate. In summary, from an investors or buyers perspective, the higher the cap rate, the better. Investors expect a larger return when investing in high risk income properties. Cap rates may vary in different areas of a city for many reasons such as desirability of location, level of crime and general condition of an area. You would expect lower capitalization rates in newer or more desirable areas of a city and higher cap rates in less desirable areas to compensate for the added risk. In a real estate market where net operating incomes are increasing and cap rates are declining over time for a given type of investment property such as office buildings, values will be generally increasing. If net operating incomes are decreasing and capitalization rates are increasing over time in a given market place, property values will be declining. If you would like to find out what the cap rate is for a particular type of property in a given market place, check with an appraiser or lender in that area. Be aware that the frequency of sales for commercial income properties in a given market place may be low and reliable capitalization rate data may not be available. If you are able to obtain a market cap rate from an appraiser or lender for the type of property you are evaluating, check to see if the cap rate value was determined with recent sales of comparable properties or if it was constructed. When adequate financial data is unavailable, appraisers may construct a cap rate through analysis of it's component parts thus reducing the credibility of the results. Cap rates which are determined by evaluating the recent actions of buyers and sellers in a particular market place will produce the best market value estimate for a property. If you are able to obtain a market cap rate, you can then use this information to estimate what similar income properties should sell for. This will help you to gauge whether or not the asking price for a particular piece of property is over or under priced. NOI NOI Cap Rate = -------- Estimated Value = ------------- Value Cap Rate Example 1: A property has a NOI of $155,000 and the asking price is $1,200,000. $155,000 Cap Rate = -------------- X 100 = 12.9 rounded $1,200,000 Example 2: A property has a NOI of $120,000 and Cap Rates in the area for this type of property are 12%. $120,000 Estimated Market Value = ------------ = $1,000,000 .12 Net operating income is determined by subtracting vacancy amount and operating expenses from a properties gross income. Operating expenses include the following items: advertising, insurance, maintenance, property taxes, property management, repairs, supplies, utilities, etc. Operating expenses do not include the following items; Improvements such as a new roof, personal property such as a lawn mower, mortgage payments, income and capital gains taxes, loan origination fees, etc. Appraisers use the Income Approach, Cost Replacement and Market Comparison methods to estimate the value of property. The Income Approach utilizes the theory of Capitalization.