Silver Lake Income Properties In High Demand

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We’ve just completed a review of the data for sales of 2-4 unit income properties in Silver Lake over the past six months. For more on the methodology, please see below. Meanwhile, here are the headline numbers:

  • Median estimated gross rent multiple: 12.7x annual rents
  • Median estimated CAP rate: 5.5%
  • Median sale price as % of list price: 98%
  • Median days on market: 51
  • Median price per sq ft: $318
  • Median price per unit: $226,500

More color on the data:

What does it mean that properties are selling at 98% of list?
Buyers need to know that the days of low-balling sellers in Silver Lake are pretty much over. To get a property, they need to come in with a strong offer at around the list price.

What does a 12.7x gross rent multiple mean?
This means that properties are selling at around 12.7x the total annual rent that they generate. Here’s some more info on gross rent multiples.

What does a 5.5% cap mean?
An estimated median cap rate of 5.5% means that, if you bought these properties using all cash (instead of a mortgage), you would be earning 5.5% on your money in year one. Here’s some more info on cap rates.

What does it mean that the days on market number is 51?
Days on market includes the time from when the property was first listed until the date of closing. It generally takes 30-45 days to go through the escrow process. This means that properties are getting accepted offers within roughly one to two weeks of being on the market. So buyers need to be confident enough about what they’re doing to move aggressively on properties they like.

Why are buyers paying prices that equate to 5.5% cap rates?

  1. Interest rates are around 4%, so borrowing money to buy these properties actually boosts your annual return into the 8-10% range.
  2. With money market rates around 0.5%, even a 5.5% return looks pretty good.
  3. Buyers are betting that rents will continue to increase over time, thereby increasing the returns.

Fine print: 

We looked at properties listed as sold by the MLS between 9/1/11 and 2/28/12 in the area defined as Silver Lake by the LA Times Neighborhood Mapping Project. There were 20 properties in the initial sample. We removed four properties which, for various reasons, would not have qualified for a mortgage, meaning that only a professional flipper could buy them. For the remaining properties, we estimated the rents for units which were delivered vacant at time of sale. We also estimated the cap rates based on an expense margin of 30% of rents.

Based on information from the Association of REALTORS®/Multiple Listing as of 2/28/12 and /or other sources.  Display of MLS data is deemed reliable but is not guaranteed accurate by the MLS.   The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.

Oh, and yes, we know we left out leap day. Sue us!

The data: Silver Lake Income Property Survey February 2012 – final

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