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Income properties selling at a 32% discount from 2006

By Dan Miller danielmiller@kw.com
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We know from experience many of today's multifamily properties offer a better value than properties from just a few years ago. But what do the broader numbers say?

We can analyze data from the South Central Wisconsin MLS to assess the gross rent multiplier for Dane County multifamily real estate. We can do this by assessing the selling price and the gross annual income that are attached to sold MLS listings.

The gross rent muliplier is calculated as follows:

GRM = (Sales Price)/(Gross Annual Income)

A declining GRM indicates investors are able to purchase properties at better values.

The graph below shows the gross rent multiplier dating back to the year 2000. The GRM began the decade at 8.36 and increased until 2006, when it topped out at 11.35. Since that time the GRM has been falling. The GRM ended the 2011 year at 7.67, a new low for the millenneum.

The GRM in 2011 was 32.4% lower than the GRM in 2006, which suggests the average investor in 2011 received a 32.4% discount off the purchase price compared to the investor who purchased a property with the same rental income in 2006. In other words the investor in 2011 could achieve the same rental income as the investor in 2006, but at a 32.4% lower purchase price.

Our analysis 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 analysis 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 today's multifamily investors are getting much better deals then those investors from just a few years ago.

Our articles on multifamily real estate

  • Multifamily investment terms
  • How we help you invest in multifamily real estate
  • How we help you sell multifamily real estate
  • Dane County multifamily real estate report
  • Dane County return on investment report
  • Dane County multifamily gross rent multiplier report
  • Madison rental vacancy rate report

  • About Us

    This information is provided courtesy of Dan Miller Shawn Kriewaldt Chris Venden  and Tammy Steiner of Keller Williams Realty and DaneCountyMarket.com.  For more information, please contact:

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