Source: Berkadia.com Are multifamily properties in the United States going to stop cash flowing? Maybe. Over the last 2 decades capitalization rates (cap rates) have been steadily falling. The compression of cap rates basically means that investors are willing to pay more for less cash flow. Capitalization rate is the relationship between the price of […]
Are multifamily properties in the United States going to stop cash flowing? Maybe.
Over the last 2 decades capitalization rates (cap rates) have been steadily falling. The compression of cap rates basically means that investors are willing to pay more for less cash flow. Capitalization rate is the relationship between the price of and asset and the amount of revenue it produces. As investors pay more for assets the cap rates fall. In turn the cap rate rises as the income of the asset rises over time (rents being raised).
Real estate has always followed the traditional market cycles of business (Recession, Expansion, Peak, Decline). If this holds true, then the multifamily market is set for a pricing correction. If the current pricing trends hold true, then we are facing a new paradigm shift in the way we value income producing real estate as it will cease to actually produce income.