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