All Forum Posts by: Adrian Jenkins

Originally posted by @Art Perkitny:

@Adrian Jenkins, as the comments above have already stated, cap rate (or any return metric for that matter) will usually correlate with various risk metrics. 

In the case of demand, we can look at vacancy rates for rental units to gauge if the market has high or low demand.

If we then compare the median cap rate for each location within each vacancy rate cohort between 0.8% and 16.3% we get this:

As you can see, at very low vacancy rates (i.e. high demand) cap rates are rather constricted. 

Whereas the vacancy rate increases so does the median cap rate.

The data above was collected from the census american community survey and is computed at the tract level.

Vacancy rates where computed first and split into cohorts that increment 0.1 percent. I then queried the data-set for each cohort and computed the median cap rate based on 50 percent of annual median rents divided by the median home value for each respective census tract.

I then filtered the data set for cohorts with 100 or more samples to eliminate any potential outliers. 

Link to Raw Data CSV

 That was very helpful. Felt as if I was back in college again but actually paying attention this time.

Thank you!

Hello. As the title suggests, is this a strategy anyone else has used? I live in LA, so cash flowing on a property without 50% or more down is impossible.

Is there a flaw in the logic of purchasing a place for the sole purpose of having a tenant pay off my mortgage? I wouldn’t live in the unit as it won’t be near my work and where I currently live.

Any thoughts?

@Caleb Heimsoth

Thank you for the info Caleb. Seems as property managers can be lazy or can take advantage of an out of state or long distance owner. My fear is to have the issues you mentioned.

Thank you for the info Ryan. Based on this theory, wouldn’t the risk of an already low cap rate even become riskier or lower for the same reasons such as the property not producing income as well as not appreciating?

I’m trying to compare what is is riskier. If one was to purchase an already expensive property that doesn’t even cover the mortgage with monthly rent, I would suppose the loss of rent income or property appreciation would be even more problematic. 

Hello everyone.

As a newbie I am a little concerned about investing in a city and state I am unfamiliar with for the following reasons.

a) buying in a place I’ve never been to

b) not being able to tell what part is good or bad

c) not being able to tell if I’m being taken advantage of by a local real estate agent

d) since I work a 9-5, I’ll hardly ever go out to visit

Can anyone be kind enough to share if any of this was ever an issue or if you were able to jump though all these hurdles mentioned above?

In a perfect world I would find something on MLS, make an offer, get a referral for a property manager and then cash flow... however this seems to good to be true. Since I live in LA it's impossible here.

Thanks!

Hello everyone. Newbie from CA here. I've seen multiple comments by others on these forums where they state that a high CAP rate just means low demand. This seems as if it over simplified this concept but can anyone shed some light on this topic?

I live in LA and any CAP rate you'll find is below 1%.