The sales comps for a four-plex and market rent will influence the cap rate. If prices are still falling and rents are increasing, then cap rate should go up.
If you are buying a four-plex, I would not look at the cap rate. I would look at the cash flow the property generates and the yield on my invested capital to make my purchase decision.
Past results are not a reliable predicter of future prices . Furthermore, an average statistic for a large population sample can not be applied to a single property with any expectation of reliability.
I think the historical CAGR is irrelevant in this market today. If I tell you that over the last 50 years, the growth rate has averaged 13%, can you expect a 13% growth rate next year? What if I tell you that for the past three years the CAGR has declined 17%? Does not mean a specific property you purchase this year will decline 17% in value next year.
Even if CAGR shows an increasing trend, a specific property may not generate a positive cash flow. Buying a negative cash flow on the expectation of future price appreciation is speculating, not investing.
The sales comps for a four-plex and market rent will influence the cap rate. If prices are still falling and rents are increasing, then cap rate should go up.
If you are buying a four-plex, I would not look at the cap rate. I would look at the cash flow the property generates and the yield on my invested capital to make my purchase decision.
Cool. What is historical cash-on-cash CAGR for Los Angeles 4-plexes?
You really need to know the area.
S. Central LA, will have radically different info than Santa Monica or ore of the non-rent controlled areas on the west side.
Past results are not a reliable predicter of future prices . Furthermore, an average statistic for a large population sample can not be applied to a single property with any expectation of reliability.
I think the historical CAGR is irrelevant in this market today. If I tell you that over the last 50 years, the growth rate has averaged 13%, can you expect a 13% growth rate next year? What if I tell you that for the past three years the CAGR has declined 17%? Does not mean a specific property you purchase this year will decline 17% in value next year.
Even if CAGR shows an increasing trend, a specific property may not generate a positive cash flow. Buying a negative cash flow on the expectation of future price appreciation is speculating, not investing.
[ Edited by NewKidInTown3 on Date 01/23/2009 ]
I ran into a company called pinnacle something... sounded very interesting..