Real Estate question

August 14, 2007 4:55 PM

What are the average numbers (purchasing price as a multiple of yearly rental costs/income) for real estate in the US?

Let's say a house with several apartments brings in X dollars of rent each year. What is the multiple of X for which the house is sold? In Europe it is, depending on the city and area, 10-25 times X. What are the numbers in the US?

posted by yoyo_nyc to Work & Money (3 answers total)

The proper term you're looking for is cap rate (which technically should back out operating costs). 10x income would be a 10% cap rate, 25x would be 4% (100/10 or 100/25, natch).

Anyway...I've seen medium to large apartment complexes (15+ units) in Phoenix, AZ sell for anywhere from 8% - 12% cap rates (so 12.5x to 8.3x). That includes the effect of operating costs.

Single units are more expensive. The small condo I rent in AZ would go for about a 6% cap rate. A large luxury house here maybe slightly less at around 5%. But prices have been declining in this market. I wouldn't be surprised if I could buy my unit at 7% right now.

In big cities like NYC, SF and DC, where rents are quite a bit higher, condos probably sell at around 5% cap rates (so 20x rent).
posted by mullacc at 5:21 PM on August 14, 2007

The economist compares house prices internationally here, gated, I am afraid. An academic approach to the relationship between house prices and rent is here.
posted by shothotbot at 8:23 PM on August 14, 2007

I didn't mean my answer above to be anything definitive, just my observations of the market. In any case, I came across this article that mentioned cap rates for multi-unit housing in NYC.

According to the article, Peter Cooper Village/Stuyvesant Town, a 11,000+ unit apartment complex, sold in 2006 at a 3.1% rate in the largest property deal ever in the US. Not comparable to the small units the OP asked about, but damn interesting.
posted by mullacc at 9:53 PM on August 14, 2007