Are We at the Top of the Market??

[John Bapst]

What is going on in Southern Maine? Over the last 12-18 months, feel like valuations have gone hyperbolic. Looking at cap rates on some 2-4 units and there is actually stuff with a 3-handle on it! Most seem to be ~4.0-4.5%. And this isn't just in Old Port / Munjoy Hill / etc. It's all of Portland and even South Portland (not even stuff close to the water...)

I know inventory is tight tight tight down there, and that price appreciation is strong right now, but these are asks that are implying you wouldn't even get your cash back via NOI (assuming rent/expenses are steady state) for 20-30 years...

I personally think we are closer to a downturn in terms of broader macroeconomic trends than we are to an upswing...not expecting anything dramatic but we've been going on nine years running at this point. Makes it risky to buy something at 4% cap. And assuming we don't go into downturn, builders are eventually going to build more entry-level single-family product (which is what that market needs)...that's just supply and demand. 

What sort of price appreciation forecasts are people penciling in to make these deals work on the buyer side? Or are people just playing hot potato right now? Anyone else scratching their heads?