Investors who purchase apartment houses see better deals now than in the last four years. In contrast to housing, where prices are low, inventory high, loans are difficult to get, and 40% of the market is foreclosures or short sales, the rental market (especially apartments) have rents growing, vacancies declining, and can produce cash flow that is positive from day one. In fact, rents nationwide now average $991, which is up from $930 in 2006. Here in the San Francisco Bay Area, the average is $ 1,025 to $1,200, because there are less units available here and there has been very little building in the last few years.
So, if you are thinking about investing in a rental property, think apartments and here is what you should look for:
- A property that produces at least 6% return on your cash investment in the first year.
- Expenses that do not exceed 40% of the gross income
- A cap rate percentage the higher the better and a debt service coverage ratio that is the lower the better
- A property that gets you to break even or cash flow positive day one
And, if you don’t want to be an owner, consider Real Estate REITS– they are hot again. They pass along on average 90% of their income to their investors each year and are returning in some cases 20% percent.
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