Updated over 12 years ago on .
Rental Growth
It seems to me like a lot of investors focus too much on current yield (am I getting that 1 or 2% of purchase price in rent) and not enough on future rental growth and other factors.
Of course, I know it is very dangerous to try to determine future rental growth rates, but keep in mind a property that has a monthly rent of approx. 0.75% of purchase price that has 4.5% yearly rental growth will have roughly the same NOI after 10 years as a property that has a monthly rent of just over 1% of purchase price that has a yearly rental growth of 2%. The former will also have more appreciation.
Also, the markets with a big rental increases lately are also very expensive most often (San Jose, San Francisco, etc...), but some of the Texas markets have been going up nicely too. The problem with Texas is that they have enormous building going on that sucks up that demand and the cities can sprawl out in any direction to just keep going. Also, they have high property taxes which make a 1% deal not quite as enticing as in other locales.
I guess the key is where do millenials want to go. What cities and what areas of those cities - more urban. Where will the job growth be in future industries like technology and so forth. What markets will be constrained by geography.
Any investor thoughts on the subject?