Cap Rates
Cap rates are at an historical low. What does this mean to investors? I have been concerned about the low cap rates and what a rise in the interest rates will do to values of properties. Here is an excellent article that gives a contrary viewpoint and will make you feel much better about the low caps rates.
http://www.nareit.com/portfoliomag/03mayjun/in_closing.shtml
Cap rates are only one of the variables of investment real estate. An investor needs to look at the bigger picture and decide if the intrinsics of the deal make sense. One of the most important metrics is the cash on cash return.
Since the cost of debt is at historically low levels, investors are willing to pay for assets at these low cap rates. As most investors know, cap rates and interest rates are highly correlated.
Also remember that markets vary greatly. What makes sense in Lawton, Oklahoma is not going to make sense in Beverly Hills, California.
This is interesting. (If only I could understand it)
What is important to understand is that this article emphasises the SPREAD between current cap rates and the cost of money. Many commerical investors buy on cap rates and have been concerned that the low cap rates today are dangerous to future values. This article supports current caps rates and tells us why they are attractive.
Great article referral! Interesting reading!
If you are able to refi into a low interest, assumable (subject to credit) loan, then the value of your investment will rise if interest rates rise. this is due to your debt interest rate would be lower than market. the value amount can be calculated by a finance or accounting pro.