Rents Up in Inland Empire

Today's Riverside Press-Enterprise reports that apartment rents in the Inland Empire (Riverside and San Bernardino Counties) are up 5.4% in the last year.

http://www.pe.com/articles/rent-758547-percent-effective.html

Multi-family is distinguishing itself from the other sectors of commercial real estate by showing demand. Demographics in the U.S. continue to "create" families and young adults, while other business sectors are languishing.

As an investment, this is a big deal. Assume that current owners bought their apartment properties at a "seven cap" (the net operating income was equal to 7% of the purchase price). Assume that they made seven percent on their original price (ignore the effects of financing, for the moment).

If they made seven percent, and the total rent receipts increased by five more percent, their financial return is excellent. In very crude terms, they made about 12% over the last year, in a measure known as "internal rate of return" (IRR).

Now, let's consider financing. If the owner financed their property purchase, they probably got a loan of about 4-5%. Since they bought a 7% investment, using 5% money, and got 5% more through rent increases, their actual IRR is even greater.

Compared with other investments, apartments are doing very well, and unless tenants disappear (or move to another area), apartments will continue to do well.