Apartment valuations soar in Vancouver

(August 13, 2012 )

Capitalization rates — the ratio between the annual operating income and the value of a property — have dropped to as low as 2.5% on some deals in BC, good news for investors.

The lower the cap rate, the more income-generating the property is.

So why are cap rates on the decline?

Borrowing costs have never been lower. Backed by government-owned Canada Mortgage and Housing Corp., landlords are borrowing for five years at less than 2% and 10-year money is around 3%. With leverage of up to 75% of appraised values available, landlords are able to profit from the spread between 4% returns and 2% borrowing costs.

The condominium sector has also grabbed some of the rental market, higher rents give landlords some advantages.

There is revenue diversification, in one apartment building you can be diversified by 250 different tenants. The risk is low even if those tenants lose their jobs and can’t make their car payments; they’ll probably still make their rent payments.

"Multifamily is recession-proof and there is a global demand for stability"

Source and full article here.

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