Decomposing Apartment Returns and Strategic Implications via Property Management Insider

For real estate investors, it doesn’t get any better than owning assets in an environment where cap rates are compressing. You know what I’m talking about. We all aspire to experience the euphoria that comes with a quick strike. These feelings soon become the main topic at cocktail parties as conversation shifts from breaking the ice to that of killer IRR returns. While pricing effects from cap rate movement can have a major impact on total returns, it is not the historical norm. In fact, historically speaking, 70% of positive returns have been driven by income while a mere 30% came from appreciation, according to NCREIF data. The tables turned only in the past decade.

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