Home prices in many markets have now fallen below the rent-equivalent price, where investing in rental property again makes sense. And demand for rentals will increase as the economy improves. This is a favorable time for investors but they must be careful to price their investment with the right Residential Cap Rate to reflect the risks, which can be quite different in local markets that remain over-built or where unemployment is high. Risk-adjusted Local Cap Rates should be used to calculate the price an investor is willing to pay for a rental property, so that investment returns make up for the risks involved.
To help our customers better understand current market conditions and projections, Local Market Monitor provides periodic analyses of national economic trends and their impact on real estate markets. This analysis, developed by Ingo Winzer, reflects his view on the current outlook for the national economy.
The Capitalization Rate for rental property is an interest rate that allows a short-hand calculation of the value of a property if the annual net income of the property is known.