We know from experience many of today's multifamily properties are selling for less than what they sold for a few years ago. But what do the broader numbers say?
We can analyze data from the South Central Wisconsin MLS to assess the income-generating value for Dane County multifamily real estate. We can do this by assessing the annual gross income and the selling price that are attached to sold MLS listings. This gives us the Annual Gross Income to Sales Price Ratio. The ratio is calculated as follows:
Annual Gross Income to Sales Price Ratio = (Annual Gross Income)/(Sales Price)
A higher number means investors are receiving more income-generating value for their purchase dollar.
The graph below shows the annual gross income to sales price ratio dating back to the year 2000. The ratio began the decade at 12% and declined until 2006, when it bottomed out at 8.8%. Since that time the ratio has been rising. The ratio ended the 2011 year at 13%, a new high.
The ratio in 2011 was 47.9% higher than the ratio in 2006, which suggests the average investor in 2011 received 47.9% more rental income than the investor who purchased a property for the same price in 2006.
The ratio does have some limitations. First, not every sold listing has the annual gross income attached to it. These listings are excluded from the analysis. Second, this number does not take into account the operating expenses and financing costs for sold multifamily listings (operating expenses have risen slightly over the years, while interest rates are presently at historically very low levels).
Nonetheless the trend above shows multifamily investors have been getting more income for their purchase price since the multifamily market softened earlier in the decade.
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This information is provided courtesy of Dan Miller, Shawn Kriewaldt, Chris Venden, Dasha Shy, and Jodi Shehadi of Keller Williams Realty and DaneCountyMarket.com. For more information, please contact:
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