The issue here (bay area) is that we will not have 8% yield or 4% Cap rate in bay area or even near to this level of ROI.
On any case, either Austin or Bay Area, we will not be like 2008-2011. Those are gone. Even if dip is there, it will be from current level.
Gross yield of 8… 3.5cap? Include management and vacancy factor? …Texas has high taxes, high maintenance costs and high vacancy rates…too much product. …You can find 6 caps in Ca…why go all the way to Texas ?
http://www.deptofnumbers.com/rent/texas/austin/
https://ycharts.com/indicators/us_rental_vacancy_rate
http://journal.firsttuesday.us/nobodys-home-california-residential-vacancy-rates/7094/
Hard to believe. 6% cap is ridiculously good. In fact, according RE blog, can get 12% gross yield and 6% cap in Austin… but haven’t encountered any. Btw, I had mentioned a few times on this blog that going to Austin is because for the price range of $300k, Austin tenants are professionals (mostly IT and executives)… less chance of encountering difficult tenants. I’ve visited East Bay a couple of times before deciding on Austin.
I have 6 to 10 caps in South Lake Tahoe…Was just sent a 6.5 cap 4plex in Tracy for $1m …Plenty of sfhs for 6 caps in Stoc, Sac, Fresno…Lots of opportunities for syndicated deals for office commercial spaces for 7-8 caps $100k buy in…limited liquidity. … Sfhs are traditionally the lowest caps. .
Hard to believe those figures. My cap rate includes all expenses and vacancy. Btw, not interested in multi-family, only SFHs.
Randomly pick a house in Sacramento,
5350 Moonlit Bay Way
Sacramento, CA 95835
Asking $309,500
Zillow’s estimate rent $1695/ month
So, gross yield = 6.6%, how to get 6% cap?
Buy a 5-pack and there is your 100K income. It’s within many tech people’s means to do so. I always wonder why don’t they.
Randomly select a house in Round Rock,
4508 Heritage Well Ln
Round Rock, TX 78665
Asking $299k
Zillow’s rent $1995/ month
So gross yield = 8%
Sorry don’t know the “5-pack” jargon.
I heard Florida Tampa has highest Cap Rate of 15% and no state income tax.
How about Reno (no state income tax too) or Las Vegas?
I wonder whether people calculate the cap rate in the same way and include the same expenses.
Cap Rate = (gross_rent - property_tax - insuance - management_fee - utilities - repairs) / market_value
8% gross rent yield and 3.5% cap rate seems suspicious. Did hanera deducted mortgage interest and got a suspiciously low cap rate?
If Tampa cap rate is 15%, why is there no Tampa REIT?
I have friends with 15 caps in Stockton. .But chasing caps can be counter productive. Texas can have high caps, but most investors I know have had bad experiences there…Me included…Texas is a place to develop and sell…not for long term hold…No barriers to entry, high taxes, maintenance, vacancies. …Not for me…Dont forget the cost of travel…
I calculate this way
Cap Rate = (gross_rent - property_tax - insuance - management_fee - utilities - repairs) / Purchase cost
8% gross rent yield and 3.5% cap rate seems suspicious: No, it is possible.
Agreed, otherwise I would have gone to Tampa rental.
Additionally, 4-plex has high cap rate, but low appreciation rate.
SFH has low cap rate, but high appreciation.
When we see investment, we need to consider both Cap+appreciation (or Yield+appreciation) as a comparison.
5 pack just means buying 5 of these. Pay off the mortgage and that’s the 100k salary replacement.
They do, but do not disclose outside. When I was looking for one home at Sacramento during 2011, my Sacramento realtor was telling us that a Cupertino resident was buying 6th SFH at Natomas sacramento with full cash buy. All the homes were ranging 150k to 180k, most of them short sale build after year 2000.
In fact, we were over hearing the conversation for an appt with our realtor to buy the 6th home. Now, all of them doubled (remember they are all SS) and giving good returns.
At that time, my sacramento realtor sold around 86 SFH from sacramento. We were not so much knowledgeable at that time.
Same way, oakland SFH were auctioned during 2008 at San Mateo center. Only two group took all cash buy within range between 80k and 110k, almost 20-25 homes sold ! But, those were not Techy, but some business group.
Taxes in Texas are high…could drive the cap rate down…Old rule of thumb. Expense ratio should be about 25%…So an 8 yield should be a 6 cap…But an older home might have higher maintenance costs and management fees vary…mortgage costs are not used in cap calculations…but are used for cash on cash returns…
Pay cash so no mortgage interest.
All expenses = Property tax, Insurance, HOA, Property Management, Leasing fee, renewal fee, Set up costs, Regular maintenance, Repairs, Capex, Vacancy period.
Go buy a mix…Mutli Family for cash flow and shfs for appreciation. .However the best appreciation rate I every got was multi family…it is all about buying right
What’s the property tax rate? What vacancy rate do you use? 4.5% expense ratio seems very high.
3.5% expense ratio is not hard to have in California.
Why are you so conservative? Using cash to buy a 3.5% cap rate seems not very attractive. You can get 8% with SPY and no headache.