Multi-Family Housing Statistics

Only two percent (2%) of available multi-family properties in the Palm Springs area went into escrow in March of 2007. For every property placed in escrow, 7.4 new Listings came on the market in March 2007.

Does this mean this market segment/area is crashing and there are no buyers?

This means there are no buyers for properties with inflated asking prices and/or without complete and accurate financial information.

The income/expenses need to be accurately represented. Yes, you will see properties in the MLS that reflect a 6% or more cap rate, however the expenses are understated, thus inflating the cap rate.

There are no multi-family buildings with expenses under 30%. Operating Expenses include ALL expenses of the building. This includes NEW property taxes, management costs, vacancy factor, an estimate for repairs and maintenance based on the age of the building, etc.

Income property values are based on “Income”. A property priced correctly, in good condition, and accurate financials will sell. Incorrectly stated properties are the reason we have increasing inventory that is not going to sell, inflate the statistics, disappoint the sellers and distort the true market picture.

Cap rate - a way of comparing apples to apples. Net Operating Income divided by the value of the property = cap rate.

A cap rate of around 6% is realistic for multi-family in the desert. The larger the number of units the higher the cap rate. The more desirable the property the lower the cap rate (beach property for example). The less desirable a property, the higher the cap rate (a 50 year old building in a high crime area).

For further clarification check out my article at: Common Real Estate Terms.