Anyone familiar with the Seacoast area of New Hampshire would know that finding an affordable rental has been extremely challenging for the last few years. Our team took a look back to see what investors thought about the rental market across the state to see if multi-family units that do sell, show the same desirability as other investment options.
Over the last decade, Capitalization Rates (CAP Rates) have significantly decreased from trading at greater than 10% to properties under 5% in strong NH markets. To anyone unfamiliar with the term CAP Rate, this is the rate of return on your money if you were to buy the asset (in this case real estate) in cash for the full amount and did not finance the property. For simplicity sake, if you were to buy a $1,000,000 property at a 10% CAP Rate, then you would expect to have a Net Operating Income (NOI) of $100,000. The higher the CAP Rate, the more cash income you receive on the property.
Some of the real estate transactions b Ethan Ash and Dave Garvey have participated in over the last two years can be seen below:
Additional real estate transactions in the past two years:
355 Main Street Somersworth, NH 03878
| Sale Price: | $1,100,000 | |
| Number of Units: | 12 | |
| Cap Rate: | 8.0% | |
| NOI: | $87,744 | |
| Year Built: | 1970 | |
| Building Size | 7,794 |
| Sale Price: | $625,000 | |
| Number of Units: | 5 | |
| Cap Rate: | 8.26% | |
| NOI: | $51,654 | |
| Year Built: | 1890 | |
| Building Size | 4,710 |
When we look at the rates over the last couple years, the CAP rates are trending down consistently. After the anemic recovery from 2013 through 2017, investors appear to have reached the conclusion that it was time to jump into the market. As the cost of funds have remained very low through FED policy, the CAP rates have also been dropping from the high 8-11% range, to a new low of 6 -9% over the last couple of years. Interesting points relative to the CAP rate appear to not only be related to the income associated with the property, but location, appearance, amenities, and overall condition will play into it as well.
Another factor to consider, as we look at the CAP rates, is the location, even within the seacoast. We have noted that in the past the CAP rates, even though they were higher, were still tiered from Portsmouth and inland, away from Portsmouth. When rates in Portsmouth were in the 8% range, the rates in Dover were closer to 10%, while Rochester rates were in 11% and 12%. We now find that the rates in the Portsmouth market are more in the 5% or less range, with the Dover and Rochester markets moving down to a 6-8% range. So movement, yes, but perhaps not directly a proportionate change.
– David Garvey, Managing Broker and Ethan Ash, Associate Broker