Cap rates vary over time, as market conditions change.  Here is a brief analysis of current cap rates for single properties in the Harrisonburg area as of May 2008.

1337 Devon Lane, Harrisonburg = 6.5%
3 bedroom, 1.5 bathroom, 1254 SF townhome
Sold for $130,000 in March 2008
Projected rental rate = $900/month
( ($900 per month x 12 months) - ( $328 insurance + $778 taxes + $708 POA + $500 repairs ) ) / $130,000 sale price

1308 Bradley Drive, Harrisonburg = 6.7%
4 bedroom, 2 bathroom, 1352 SF townhome
Sold for $147,900 in January 2008
Rental rate = $100/month
( ($1100 per month x 12 months) - ( $373 insurance + $821 taxes + $1620 POA + $500 repairs ) ) / $147,900 sale price

1014-6 Blue Ridge Drive, Harrisonburg = 6.0%
3 bedroom, 2 bathroom 1108 SF condo
Sold for $103,500 in February 2008
Projected rental rate = $750/month
( ($750 per month x 12 months) - ( $261 insurance + $587 taxes + $1560 POA + $400 repairs ) ) / $103,500 sale price

You can see in the examples above, that current cap rates are in the 6% - 7% range.  However, these cap rates decrease if an owner is paying a management fee for someone else to manage the property for them.  With a management fee of 9%, the cap rates above would be 5.8%, 5.8%, and 5.2% respectively.  The cost analysis above also does not include utilities, advertising, or vacancy.

Related Posts:
Harrisonburg Multi-Family Cap Rates
What Is A Cap Rate?

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The "cap rate" or capitalization rate of a property is what I call an an "investment measure."  It is a value that compares the income generated with the acquisition cost of an investment. 

For example, if you purchase an investment property for $160,000 and it generates a net income of $16,000, then the cap rate for the property is 10%. 

To take it a bit further, let's look at this example of a Beacon Hill townhome as an investment property:

Purchase Price:  $160,700

Gross Operating Income:  $10,476
($900/month - 3% vacancy)

Operating Expenses:  $1,479
($949 taxes + $405 insurance + $125 POA dues)

Net Operating Income:  $8,997
($10,476 gross operating income - $1,479 operating expenses)

Capitalization Rate:  5.6%
($8,997 net operating income / $160,700 purchase price)

A few other notes about cap rates:

• The cap rate is independent of financing.  It is not a measure of whether an investment property is a "good opportunity" when your particular financing scenario is included.
• Your analysis of operating expenses sometimes would also include management costs, repairs, utilities and advertising
• The cap rate of a particular property can be helpful, but even more helpful is comparing the cap rate of several properties that you might purchase.

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I received this letter today.  Does anyone have any insight into Thursday's announcement?

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For the past seven years, Coldwell Banker Funkhouser Realtors (the company where I work) has represented the builder/developer of Beacon Hill Townes.  Up until the most recent six months, the townhouses that have been built have been of high quality, with several exciting standard features such as hardwood floors on the main level.

Now, everything has changed!  All of a sudden, the builder has decided to throw in even more upgraded features as standard components to the townhouses currently being built. 

Gone are the standard "builder's brass" light fixtures, door knobs, etc.  Now, you'll find exciting (and contemporary) features such as decorative lighting and plumbing fixtures, upgraded cabinetry, decorative door hardware, and more.

Why, you might ask?  Was the change made to try to eek a little bit more profit out of each townhouse sale?  Actually --- the prices have remained some of the most competitive (low) prices of all new construction townhome subdivisions in Harrisonburg.  One reason for the upgrades is to finish out the last section of Beacon Hill with the most exciting units yet, to keep the excitiment for the subdivision high all the way to the end.

Whatever the reason --- the new townhouses being built are quite stylish, and give a wonderful impression to buyers who have been shopping around and looking at other new construction townhomes.  I'm curious to see how long it will be until other new townhomes in Harrisonburg start to include some of these stylish upgrades.  Soon, I hope --- as it certainly benefits Harrisonburg townhome buyers!

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Property Characteristics
Finished SF	1,626
Circa	2006
Bedrooms	3
Bathrooms	2
Lot Size	0.278 acres
Pricing
Assessment	$252,400 (2008)
Original Amount of Deed of Trust	$173,245.50 (10/2005)
Equity Opportunity	$79,154.50
Trustee Sale Details
Date/Time	May 22, 2008 at 8:00 AM
Location	Rockingham County Courthouse
Deposit	10%

Source:  Daily News Record, May 1, 2008
Trustee:  Bierman, Geesing & Ward, LLC, 301-961-6555, http://www.bgwsales.com/

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Property Characteristics
Finished SF	1,292
Circa	1993
Bedrooms	2
Bathrooms	1.5
Lot Size	0.046 acres
Pricing
Assessment	$104,500
Original Amount of Deed of Trust	$65,000 (7/2004)
Estimated Current Balance	$62,000 (6.5%)
Equity Opportunity	$42,500
Trustee Sale Details
Date/Time	May 22, 2008 at 11:30 AM
Location	Rockingham County Courthouse
Deposit	Lower of $6,500 or 10%

Source:  Daily News Record, May 1, 2008
Trustee:  Shapiro & Burson, LLP,  757-687-8777

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I am having an open house today (May 4, 2008, 1:00-3:00) for one of the properties that I am marketing, a 5-bedroom, 3.5 bath colonial with 3,796 SF priced at $469,000, and located at 3064 Briarwood Court in Harrisonburg, VA.

I have held several other open houses over the last few weeks, and will have another two weeks from now.

So . . . how effective are open houses? I suppose it depends on how we define effective . . .

Open houses do (unless nobody shows up) get people inside of homes who may not have viewed the home otherwise. The people who are coming through aren't always qualified to purchase the home they are viewing, and they don't always end up having interest in it, but one important step of a successful sale is to have people view the home for sale.

Open houses don't necessarily sell homes. I don't have the exact figure at hand as I am currently writing, but the research shows that only a VERY small percentage of home buyers find the home that they purchase by attending an open house.

Some Realtors see open houses as an opportunity to meet new buyer clients. I suppose that could happen from time to time, but certainly, that doesn't accomplish any of the original goals of the owner of the home.

Here are some interesting stats to consider from several recent open houses:

Property #1 -
Prior to the open house, there had been 3 showings of the property.
During the open house, 4 groups visited.

Property #2 -
Prior to the open house, there had been 7 showings of the property.
During the open house, 4 groups visited.

Property #3 -
Prior to the open house, there had been 6 showings of the property.
During the open house, 10 groups visited.

Property #4 -
Prior to the open house, there had been 2 showings of the property.
During the open house, 2 groups visited.

Property #5 -
Prior to the open house, there had been 18 showings of the property.
During the open house, 5 groups visited.

For several of these homes, the open house generated more prospective buyers inside the home than had seen it to date. However, none of these properties have sold yet, so the open houses didn't accomplish that main goal of selling the house.

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Well, perhaps we don't have to narrow it down with such extreme labels, but there has been some interesting debate over the subject over at hburgnews.com, all of which began with the issue of funding disappearing for the expansion of Port Republic Road.

Here are some of my thoughts, though I would love to hear other perspectives on the subject:

WHY GROWTH OCCURS:
Desirable area -> people want to live here -> they need a place to live -> many want to buy -> more homes are needed -> land is rezoned -> lots are developed -> houses are built.

While growth stems from a positive situation (an area being desirable), it is also true that:

• growth has some negative consequences
• growth does not have a net positive impact on all involved

But what is the alternative? To halt growth?
To do so, a locality would need to either:

• stop rezoning land, and/or
• stop issuing building permits

Taking either of these steps would (in my opinion) have some rather negative consequences:

• housing costs increase (since supply is limited), making it harder for existing residents to afford housing in their own community
• economy stays stagnant, or shrinks, as a result of higher housing prices and a locality's desire to limit growth --- employers won't move here (or stay here) if their employees (or potential employees) can't find housing they can afford --- thus, existing residents would then have fewer job opportunities without moving out of the area

Thus, I would submit that:

• Harrisonburg and Rockingham County will not continue to be desirable places to live UNLESS growth occurs.
• Said growth needs to be well-planned to preserve the character and history of this area.

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Wait a minute!  Let's examine that . . .

A friend recently made this comment at the end of an unrelated conversation.  His plan was to start looking on the web, going to open houses, going to see houses for sale with the listing agent for each of those houses, and then when he found the one he wanted --- he'd call me to help him buy it. 

I told my friend that if he plans to enlist my services to assist him in buying a home, that we ought to approach the task in a slightly different manner:

1.  We discuss his needs/wants in a home.
2.  We review (online) the currently available properties, and we go view (in person) the current options.
3.  We both monitor new listings (and price changes) and go to view (in person) new options as they become available.
4.  When we find "the house" --- we make the offer, negotiate, coordinate closing details, and close on the house.

In my conversation with my friend, I didn't go into all of the details below, but I did touch on a few of these reasons why I suggested this alternative course of action:

1.  Knowing about all of the options -- many of my clients are highly adept at searching for homes online (or in other mediums), but when I also set up the search criteria within the local MLS (with e-mail alerts of new matches to myself and my client) we always find a few other good options to consider.

2.  Leveraging my wider familiarity with similar properties -- many of my clients are real estate junkies (and are very familiar with currently available homes), but often they focus their search on homes that meet a specific set of criteria.  As I begin to view homes with a buyer, I begin to understand what they like and dislike, and what they want and need.  I am often able to recommend options my clients had not considered (because the property didn't quite meet their given search criteria), because I show many buyers many homes, and have a wider familiarity of similar properties.

3.  Avoiding wasted time for other Realtors -- if I am going to represent someone in their purchase of a home, it's best for that buyer to have me view the property with them, as opposed to the listing agent.  In the past, I have worked with buyer clients who didn't want to bother me with viewing lots of homes -- and thus they decided to call the Realtor representing the seller of each home in which they were interested.  There's nothing fundamentally wrong with this, as it is in the best interests of the seller for their Realtor to show the prospective buyer the home (as opposed to refusing to show the buyer the home).  However, if I will be representing the buyer (and getting paid to do so), it is best to utilize my time for the viewings, not the time of each listing agent.

4.  Conserve your time -- the buyers referenced above, who were so gracious as to not take up my time, expended a LOT of their own time in order to do so.  When the buyer wanted to see three houses, they would call three Realtors (possibly have to wait to hear from them) and set up three appointments to see the properties.  Instead, my clients could have called or e-mailed me with the addresses or MLS numbers of the three properties, and I would have coordinated the three showings for them.

5.  Know my role -- I have had clients in the past who saw my job as a "sales job" and thus thought I would be trying to "sell them" on a house.  That's not how I see my role when I represent a buyer.  I'm not working to sell a house to a buyer, I am working to help a buyer identify and purchase the house that is right for them.  This is a big distinction --- again, I never try to convince a buyer client to buy a particular home, instead I endeavor to understand their goals, needs and desires, and assist them in finding (and negotiating on, and closing on) the home that is most appropriate for their situation.

In summary --- if you plan to have me represent you (and your interests) in a purchase, let's start working together earlier rather than later.  Doing so will allow me to better assist you in your home search!

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