Comparing Rentals in Different Markets and the Risks of Low Rent/High Cap Investments
Written by Edward Brown for Realty Times
Many investors, primarily those in California, have looked into purchasing rental property in states they would have previously not pondered but for the low CAP rates in California compared to Mid-West and Southern states.
There is so much money in California looking for an investment home that prices of real estate, be it apartments, houses, or even commercial, have skyrocketed to the point where CAP rates have plummeted. In premier locations within luxury areas in the Bay Area, CAP rates have been known to drop below 2%. With interest rates at 4+% or more, Negative cash flow is a certainty unless the buyer is putting down a tremendous amount of cash or the rents are unreasonably low to where the buyer can raise them to market levels.