The price paid for Income.
Dated: February 14 2020
I have long been focused on the idea that some people overpay and some people underpay for Real Estate.
With Owner Occupied properties this is usually explained because of condition differences that are reflected in both availablity of inventory as well as personal preferances and current trends in the local markets.
Income properties are typically less subjective, with the primary factor being what type of Return on Investment is the Seller going to get for the money that he or she pays to control the asset. However the knowledge of what others are paying for to get the return is not as readily apparent as what the house down the street sold jsut sold for.
The duplex market is uniquely position to provide a snapshot into what investors are actually paying in todays market for a dollar of rental income.
As of Jan 2020 the trailing quarters Duplex Index provides valuable input into the local investment market for Sacramento.
The average Duplex is renting for $1.49 per sqft , the average duplex sold for $413,950
The average Gross Rental Multiplier is 13.62
The average Cap Rate was 6.23% before repairs or seller paid utilites were accounted for.
The Cap Rate for properties under $350,000 was 19.28 % higher than those over $350,000 indicating that Buyers were willing to pay more for properties in better condition or better areas that may involve less risk.
It is only by calculating the cost to obtain an equivalent return that you can know whether you are paying a fair price for your income property.
Barry Mathis has been helping people buy low and sell high for nearly two decades. His experience as a Broker of Record for multiple Brokerages, a Franchise Owner, an Investor and a Property Manager, ....