Market Conditions in 94086>Question Details

Frank Wu, Home Buyer in Sunnyvale, CA

Is it a good time to buy a 4-plex in Sunnyvale? Going cap-rate?

Asked by Frank Wu, Sunnyvale, CA Tue Jan 29, 2008

I am thinking of investing in 4-plex in Sunnyvale 94086 over a long term. The recent news is "The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the biggest decline on record, surpassing the old mark of a 23.1 percent plunge in 1980." Also there is talk of further decline in 2008.

I don't know how single family home prices and 4-plex prices co-relate and what appreciation I can expect from 4-plex over next 15 years.

I need to make a decision on
a) Is it a good time to buy
b) If answer to a is yes, what Cap-rate range would be considered a good buy?

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Answers

4
Frank,

Appreciation for four plexes lags that of single family homes. The value is based on the value of the income stream they generate. That being said, they could be a good long term investment. You could expect to see cap rates around 5%. I would look at properties in Sunnyvale, Cupertino and west san jose. You won't find anything locally with a 7% CAP rate. If you did, it would be accompanied with a huge amount of risk. For one of the best real estatee blogs about investing, go to http://www.bawldguy.com/love-high-cap-rates-me-too-ever-ask-… and learn about the risks associated with high cap rates and chasing high cap rates.
1 vote Thank Flag Link Tue Jan 29, 2008
Frank,
Over the past thirty years the real estate values in the valley have at least doubled every ten years. I believe this trend will continue.
Right now, since the market is soft is the right time to invest in real estate. You will not go wrong. Please see this link
it shows you some data for the last thirty years. Also note the dollar values for previous years are adjusted for inflation for 2005.
Generally you'd want to purchase a property with high CAP rate, I'd say any property with cap rate of 7 or more is a good purchase. Additionally, the cap rate is not the only factor to be considered, the potential of the property is also important, such as rent increase potential, or vacancy rate or expenses.
Hope this helps.
Web Reference: http://socds.huduser.org
1 vote Thank Flag Link Tue Jan 29, 2008
Frank,
I know that this message posted in January, but I thought I would get back to you anyway.
Have you found the property that you are interested in. My partner just listed a 4-plex in Sunnyvale and in Mt. View and has received offers within 1 week. We are telling people to come in with 30-40% down to avoid negative cash flow.
Have a great day!

Charles
0 votes Thank Flag Link Mon May 19, 2008
Frank,

No one has a crystal ball to answer next 15 years 4plex appreciation.
We know the 4-plex's appreciation will be slower then single family.
The price of both of them went up alot.
I will say if you find a good 4plex which means under-valued then it is THE good time to buy.
The appreciation of my 4plex has more then I can imagine.
0 votes Thank Flag Link Tue May 6, 2008
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