real estate analytics for investors

In a year over year comparison of per unit sales pricing along with year over year rent charged per unit, here's what I found. This is among market rate properties located in the markets of Tallahassee, Gainesville, Ocala and Jacksonville, and Volusia and Polk counties. 

Pricing: Increased 122% from $61k to $136k per unit
Rents: Increased "only" 43% from $844 to $1,204 per month

Based on the above, I created two proformas, one for what a 2016 property would've looked like at $61k/unit and $844 rents with what the debt was back then, vacancy, Other Income, expenses, etc, using the NAA income and expense standards. Then I did the same thing creating a proforma for 2021 and the associated conditions. What I determined is that when you compare cash on cash returns, inclusive of principal reduction each month (in order to show the effect of better debt in 2021 vs 2016), investors are excepting "only" 24% less return in 2021 vs 2016. In other words, the market isn't as nutty as saying that prices went up 122% in 5 years while rents only went up 43%. The reality is investors are earning only 24% less cash on cash. However, what I didn't analyze, which would indeed further close the 24% gap, is the IRRs in 2016 vs 2021. The truth is the sales prices have been increasing at a greater pace in recent years than they were back in 2016 to 2017. Would we close the gap on 24% totally, I don't know, maybe? Probably. Also, keep in mind that cash on cash today is pretty decent whereas the cash on cash in 2016 was pretty nutty good compared to today's standards. I say all this to say, today's sale pricing is only in small part due to exuberance. It is mostly due to good fundamentals from increased rents, better debt, lower vacancy, and higher Other Income numbers.

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