Caleb Yamanaka's Discussions

Nobody can say for certain if we hit a bottom or the worst is over.  It differs from market to market and includes many factors of which nobody can predict with 100% certainty.  Some of the statements border on....  If we gauge the rest of the country solely on the beliefs  of some of our fellow posters, we are in for some deep dark days.

I've toyed with the idea of buying apartment buildings (I like the idea of providing a decent place to live for people who may not be in a position to purchase a home) but when I've looked into this before, it seemed like the return on my investment wasn't much better than what I can get by putting the money into fixed income investments. Interested_observer, It really depends on what your ROI is for fixed income investments.    As in most investments RE can provide opportunities for a variety of ROI, but along with higher returns comes higher risk.

What's the general consensus regarding apartment building appreciation/depreciation over the next five years? Depends on the property, but in general values should fall. I think the quote that you have of drops in pricing is misleading.  While it truly might reflect a nationwide average it is not a good snapshot of a market or an individual property, Cap rates of an Apartment building in Market A versus similar building in Market B, can differ greatly.  You might receive 12 or 13% cap rates in Kansas City versus 5 or 6% cap rates in Honolulu.  The reason in regards to these two markets is that investors in Honolulu are much more willing to pay for the lower Cap because they are hedging their investment on a significant appreciation. Let's say, per your example, your investment rate is 11.1%, if you truly want to invest in real estate you would then set that rate as the benchmark for any real estate investment that you want to pursue.  There are also a variety of ways to look at your overall return.  The first could be solely on cap rate, but what you are not including is the depeciation that you can take on your investment property as well as your interest deduction (if you are leveraged).  Along with that if you can safely assume your disposition price, then you can find a true reflection of what your possible return could be.

sorry missed the post that said your investment rate is 3%

Any idea how this compares to the returns I might expect if I purchased an apartment building in the near future and whether the expected ROI is based on potentially incorrect assumptions regarding increases in rents and appreciation in the value of the property. Incorrect assumptions on rent increase and appreciation are part of the risk factor.  A good way when analyzing any property is to make a best, worst and most likely case scenario.  Be conservative from the beginning. By factoring in the risk you can make an educated decision. 3% ROI is extremely low expectation for commercial or multi-density real estate.  I would hate to tell you what your internal investment cap rate should be, but I will not look to purchase anything (in regards to income property) that cannot justify a 8% cap (mimimum, and should have significant upside if it is a 8% cap).  If you want to investigate commercial (including apartment buildings) property in your area you should find someone who is has a CCIM designation, the reason is that you will know that they have the education necessary to help you analyze properties.  There are many other Agents out there who probably have the capability, but if you don't know any of them its safe to find the person with the designation.

Wow.  That's some hard selling.

Without knowing your market I do not want to give suggestions.  

my computer keeps posting without me finishing a thought 

Each property needs to be taken on a case by case basis and your intentions for the long term.  Also many things from an investor stand-point are subjective. My criteria might not be your criteria.  But in general I will not consider a property as

In general for Single Family Residential (rental) I will only look at property that will give me 1% gross rental of what I invest in the purchase of the property.   Depending on other considerations for the future, I can adjust.  Future considerations could be location,  does property give me opportunity down the line for possible zoning change?  what sort of zoning change?  All these are subjective considerations depending on your intent as an investor.