Cap Rate Recommendations - National Income Property Index (NIPI)

June 2009

Current Employment State of the Economy Current Recommended Negative/Positive Spread Current Recommended Capitalization Rate Range Current Recommended Capitalization Rate
Strong Recession Medium Positive 7% - 7.5% 7.5%

Cap Rate Recommendations NIPI™ DATELINE: June 9: The consumer confidence index jumped to 54.9 in May - up from 40 in April, interest rates remain low, inflation appears under control, the number of unemployed, although still large, is slowing down, and the general thinking is that the recession is over.

An interesting analogy might be the person lying on their back having ten drops of water dripping on their forehead every minute. When the amount is reduced to eight drops per minute, the person gives a big sigh and says “My torture is over!” Not so.

The Consumer Confidence Index uses a base year of 1985 and establishes 100 as the rating for this base year. The index is still 40 points below that average base year. We haven’t solved the energy problem beyond having an approach. The current proposals for medical coverage are not financially supportable. Social security is approaching a wall. And add to this supporting the increasing debt service cost for our national debt. The bottom line is that the recession isn’t over yet and we still have problems.

This means income property investors need to stick with the basics. Perform a vigilant due diligence examination on every property being considered for acquisition, sale or refinancing. Abort the purchase of any income property that fails strong due diligence, and minimize the identified risks of those that pass through careful and demanding negotiations.

Given all of the current conditions affecting income property, NetGain recommends that income property buyers should consider capitalization rates of 7.5% at a minimum. Every effort should be made to determine the correct capitalization rate by a thorough and objective due diligence evaluation.

The National Income Property Index™ (NIPI™) is the preeminent income property guide for increasing ROI and minimizing investment risk by determining effective cap rates. NIPI™ provides investors with time-proven recommendations based on the two most crucial influences affecting the value of income property: jobs and the cost of debt service. Based on monthly National Employment figures, NIPI™ provides recommendations on the most advantageous positive spread to negotiate when purchasing income property. It also calculates the current cost of debt service and recommends the best cap rate range that responds to the recommended positive spread based on up-to-date nationwide data.

Supporting Documentation for Recommended Cap Rates

Historical Employment and Interest Rate Data

Cap rate recommendation data continued on next page…



Email This Page Email This Page   Print This Page Print This Page

Pages- 1 2