Cap Rates

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Cap rates are at an historical low. What does this mean to investors? I have been concerned about the low cap rates and what a rise in the interest rates will do to values of properties. Here is an excellent article that gives a contrary viewpoint and will make you feel much better about the low caps rates.

http://www.nareit.com/portfoliomag/03mayjun/in_closing.shtml

Comments(7)

  • Goldie5th October, 2003

    Cap rates are only one of the variables of investment real estate. An investor needs to look at the bigger picture and decide if the intrinsics of the deal make sense. One of the most important metrics is the cash on cash return.



    Since the cost of debt is at historically low levels, investors are willing to pay for assets at these low cap rates. As most investors know, cap rates and interest rates are highly correlated.



    Also remember that markets vary greatly. What makes sense in Lawton, Oklahoma is not going to make sense in Beverly Hills, California.




  • Lethe5th October, 2003

    This is interesting. (If only I could understand it) wink

    • GFous5th October, 2003 Reply

      What is important to understand is that this article emphasises the SPREAD between current cap rates and the cost of money. Many commerical investors buy on cap rates and have been concerned that the low cap rates today are dangerous to future values. This article supports current caps rates and tells us why they are attractive.

  • 64Ford5th October, 2003

    Great article referral! Interesting reading!

  • jeffcc6th October, 2003

    If you are able to refi into a low interest, assumable (subject to credit) loan, then the value of your investment will rise if interest rates rise. this is due to your debt interest rate would be lower than market. the value amount can be calculated by a finance or accounting pro.

    • dickknox7th October, 2003 Reply

      To my knowledge there iis no such thing as a low interest rate assumable loan - exactly because when rates go up the lender wants to renegotiate.

      • jeffcc7th October, 2003 Reply

        thanks for the info...i never checked. good example of checking with a good loan broker.

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