Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
PTR? So if the market is paying 20 times rent in a market and in another market the market will ONLY pay 10 times rent how does it make sense that the latter is "better"?
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
10y
Bob,
Wouldn't you agree that there is an inverse relationship between price to rent ratio and CAP rates?The higher the price to rent ratio, the lower the CAP rate. The lower the price to rent ratio, the higher the CAP rate. Not saying that one is better than the other... but just a metics to compare against the other MSA cities. We are not taking into account the asset class of the property. I guess that best metrics it so find the best asset class that yields the highest CAP rate.
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
10y
Bob,
Yes I agree. The lower the cap means higher the demand. Higher Demand = Lower Supply = Greater Appreciation. This is the type of stuff you learn in the first day of your Econ 101 class :).
Yes I agree. The lower the cap means higher the demand. Higher Demand = Lower Supply = Greater Appreciation. This is the type of stuff you learn in the first day of your Econ 101 class :).
And yet 95% of BP posters don't understand this and cross state lines to get higher "crap" rates!
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
10y
@Bob Bowling,
Veterans like yourself have been investing in real estate longer than I have been alive. It would be very difficult for me to disagree with you when it comes to the best strategy in maximizing wealth with real estate. Yes, I agree with you that REAL real estate wealth is built more by appreciation over cash flow over a 10 year buy and hold period. I like to invest in a market where I can get both cash flow and good appreciation. Some MSA markets will give you a high CAP rate but very little appreciation if any. Out of state investors also need to think about the exit strategy rather than just chasing the high yield (Crap rate) in a market with very little potential for growth and appreciation. They will purchase a turn key property in a 4-5 school zone and realize how difficult it is for them to exit the investment.
Yes I agree. The lower the cap means higher the demand. Higher Demand = Lower Supply = Greater Appreciation. This is the type of stuff you learn in the first day of your Econ 101 class :).
And yet 95% of BP posters don't understand this and cross state lines to get higher "crap" rates!
Some of these markets are so inflated that it is not practical for an investor. Sure, 30 years ago you could buy a home in Hawaii or San Jose and today you have major appreciation. It is just not realistic for investors starting today to buy a home in San Jose for over a million dollars. That is why they cross state lines. Probably the best thing for an investor today is to identify markets that are undervalued today and will have good long term growth. Depending on where you live that could mean crossing state lines. I am not talking about investing in low end markets, but there are some up and coming markets.
Yes I agree. The lower the cap means higher the demand. Higher Demand = Lower Supply = Greater Appreciation. This is the type of stuff you learn in the first day of your Econ 101 class :).
And yet 95% of BP posters don't understand this and cross state lines to get higher "crap" rates!
Some of these markets are so inflated that it is not practical for an investor. Sure, 30 years ago you could buy a home in Hawaii or San Jose and today you have major appreciation. It is just not realistic for investors starting today to buy a home in San Jose for over a million dollars. That is why they cross state lines. Probably the best thing for an investor today is to identify markets that are undervalued today and will have good long term growth. Depending on where you live that could mean crossing state lines. I am not talking about investing in low end markets, but there are some up and coming markets.
Joe, the facts do not back up your premise.
Appreciation and rent growth have not been linear but in every decade at one point the figures match up in that the property has doubled in value and rents are up 6%+ compounded annually.
I did get a little boost on that property from the Japanese buying spree in Hawaii in the 80's and the lack of inflation is slowing my snowball growth on appreciation. But I'm probably better off that my appreciation is more based on gentrification (demand) since I'm actually keeping more of that money when I'm buying goods and services.
My mid 2000 purchase for $200,000 doubled in two years and is now worth close to $500,000 so I have 8 years to get to $800,000. My slightly over $500,000 purchase in 2008 (everybody was predicting an immediate crash} has a comparable just sell for $900,000 and a lesser comp on the market for $890,000. That's over $4,000 a month equity gain for a cash flow negative property! Add in about $300,000 rent over the same period. Well do the math.
I am not promoting any area, I just think people should do a correct analysis to determine a good market AND that is not using price to rent or crap rates or cash faux. RENT GROWTH AND APPRECIATION RATE! Investing from afar is expensive and risky. Look for the opportunities in your own back yard but realize cheap does not mean profitable.
@Amit M @Minh Le @J Martin all can show you that the Bay Area is an investors dream.
And guess what, in 2046 there will be people crying that they did not invest in 2016 and others that did that will smile when those same people tell them they were so LUCKY to buy in 2016.
Yes I agree. The lower the cap means higher the demand. Higher Demand = Lower Supply = Greater Appreciation. This is the type of stuff you learn in the first day of your Econ 101 class :).
And yet 95% of BP posters don't understand this and cross state lines to get higher "crap" rates!
Some of these markets are so inflated that it is not practical for an investor. Sure, 30 years ago you could buy a home in Hawaii or San Jose and today you have major appreciation. It is just not realistic for investors starting today to buy a home in San Jose for over a million dollars. That is why they cross state lines. Probably the best thing for an investor today is to identify markets that are undervalued today and will have good long term growth. Depending on where you live that could mean crossing state lines. I am not talking about investing in low end markets, but there are some up and coming markets.
Joe, the facts do not back up your premise.
Appreciation and rent growth have not been linear but in every decade at one point the figures match up in that the property has doubled in value and rents are up 6%+ compounded annually.
I did get a little boost on that property from the Japanese buying spree in Hawaii in the 80's and the lack of inflation is slowing my snowball growth on appreciation. But I'm probably better off that my appreciation is more based on gentrification (demand) since I'm actually keeping more of that money when I'm buying goods and services.
My mid 2000 purchase for $200,000 doubled in two years and is now worth close to $500,000 so I have 8 years to get to $800,000. My slightly over $500,000 purchase in 2008 (everybody was predicting an immediate crash} has a comparable just sell for $900,000 and a lesser comp on the market for $890,000. That's over $4,000 a month equity gain for a cash flow negative property! Add in about $300,000 rent over the same period. Well do the math.
I am not promoting any area, I just think people should do a correct analysis to determine a good market AND that is not using price to rent or crap rates or cash faux. RENT GROWTH AND APPRECIATION RATE! Investing from afar is expensive and risky. Look for the opportunities in your own back yard but realize cheap does not mean profitable.
@Amit M @Minh Le @J Martin all can show you that the Bay Area is an investors dream.
And guess what, in 2046 there will be people crying that they did not invest in 2016 and others that did that will smile when those same people tell them they were so LUCKY to buy in 2016.
This is great... Bob, thanks for painting this picture and your insight! :)
Real Estate Agent · Lowell, OR · Member since 2016 · 33 posts · 11 votes
10y
@Account Closed Shucks...you shot down my dreams of investing in another state that the numbers make more sense! But alright...if I focus my energies in Hawaii, I need help!
Real Estate Coach · Reno NV · Member since 2015 · 273 posts · 62 votes
10y
sorry bob but I have to disagree with you. Appreciation might work for someone like you who has experience and can afford the risk of not having the cash flow right now but most people won't be able to afford the negative cash flow when the economy goes down. Sure they can make a killing if they can hold on but they could loose everything if they can't. That's why I believe in cash flow first then when you have a strong base of steady cash flow you can shoot for the moon in appreciation. By the time you gained steady cash flow you should have gained experience so buying for appreciations wouldn't be as risky
Appreciation might work for someone like you who has experience and can afford the risk of not having the cash flow right now but most people won't be able to afford the negative cash flow when the economy goes down.
Jasmine, where are you getting this "guaranteed" cash flow? I bought my first cash flow negative property when my gross W2 earnings were only $800 a month. That property has generated $500,000 in rents and $500,000 in equity. It has covered the negative cash flow on every PROFITABLE investment I purchased since.
When you are in business you make budgets to accomplish your goals. If you do not have the ability to do this for a property then you will likely fail. I can be a poor landlord and still walk away from a property with hundreds of thousands of dollars in appreciation. When you are dependent on cash flow you are taking GREAT risks because that cash flow can stop at any time and you have no appreciation exit. Even if you collected years of cash flow you may very well hand it ALL back on your exit.
Real Estate Coach · Reno NV · Member since 2015 · 273 posts · 62 votes
10y
there are no guarantees, where are you getting these guarantees in appreciation? Just because appreciation worked once for you with negative cash flow doesn't mean it will be guaranteed in the future. You gambled and it paid off big. That's fantastic. Congrats. Appreciation area cost more and have more risk. For someone who can afford to loose that's great but most people can't afford a huge temporary loss. Cash flow areas cost less and give you some wiggle room if the market crashes.
there are no guarantees, where are you getting these guarantees in appreciation? Just because appreciation worked once for you with negative cash flow doesn't mean it will be guaranteed in the future. You gambled and it paid off big. That's fantastic. Congrats. Appreciation area cost more and have more risk. For someone who can afford to loose that's great but most people can't afford a huge temporary loss. Cash flow areas cost less and give you some wiggle room if the market crashes.
Jasmine, I've been doing this for 4 decades and have ALWAYS bought initial cash flow negative properties that double in value every ten years. You are right, my appreciation is no more guaranteed than your cash flow but my appreciation is MUCH greater that your cash flow so for equal risk I'll take the bigger money. If you look at the statistics you'll see that high appreciation areas tend to drop less in value and probably have no reduction in rents unlike "cash flow" markets. When your cash flow is gone and you have no appreciation then you have no investment.
Kalaheo, HI · Member since 2016 · 58 posts · 10 votes
10y
Curious... if these are acutally PTR ratios, where are these charts getting their rental data from? I have a terrible time finding any good, reliable rental data for Hawaii.
Curious... if these are acutally PTR ratios, where are these charts getting their rental data from? I have a terrible time finding any good, reliable rental data for Hawaii.
Same. I wonder if anyone can shed any light on this, if data is available for Hawaii and/or Honolulu.
Honolulu is tough as far as finding reliable data on rents. As we know, all of Oahu is considered Honolulu. Some reports only state "Honolulu", but at least this report breaks it down to Urban Honolulu, but I wonder what areas that encompasses? I know where I would draw the boundaries, but who knows where this report does.
PTR ratios are often used for determining whether to buy or rent. From that angle, it doesn't really matter which areas of Honolulu are included in the report. It's going to be one of the highest in the country. So wether it's 35 or 45, it's a tough pill to swallow.
If someone really wanted to find the PTR for a particular area, I'd recommend using Craigslist and Oahu RE. Between the two, you should be able to find the numbers you need to run the ratios. It's just a little cumbersome to do it for multiple areas. But I'd imagine they'll all be fairly close to each other, and they'd all be among the 15 worst in the U.S.