Rank | 2008 | 2009 | Cap Rate Range |
1 | San Francisco | San Francisco | mid- to high-4 % |
2 | Seattle | San Diego | low-6 % |
3 | New York City | Washington, D.C. | 5.5 % to 7.0 % |
4 | San Jose | Los Angeles | mid- to high-5 % |
5 | Oakland | Seattle | mid- to high-5 % |
6 | Los Angeles | Oakland | low-6 % |
7 | Orange County | San Jose | high-4 % |
8 | San Diego | Orange County | mid-3 % to low-4 % |
9 | Washington, D.C. | New York City | not stated |
10 | Portland | Portland | not stated |
11 | Chicago | Denver | high-6 % to low-7 % |
12 | Boston | Philadelphia | low- to mid-7 % |
13 | Denver | Chicago | high-6 % to low-7 % |
14 | Las Vegas | New Jersey | not stated |
15 | Fort Lauderdale | Minneapolis-St. Paul | low- to mid-7 % |
16 | Riverside-San Bernardino | Las Vegas | mid- to high-6 % |
17 | Salt Lake City | Riverside-San Bernardino | mid- to high-6 % |
18 | Miami | Salt Lake City | mid- to high-6 % |
19 | Phoenix | Miami | 7 % to 8 % |
20 | Tucson | Milwaukee | low- to mid-8 % |
San Francisco ranks the first position both in 2008 and 2009 because of its strong effective rent growth. It is very interesting fact that despite of the high foreclosure and unemployment rate in California, six metropolitan areas in California occupy the top 8 markets during 2008 and 2009.
Another observation worth to mention, the higher the rank of the market, the cap rate tends to be lower.
So should you invest in California, or should you invest out of the state of California? There is no general answer to this question. It is very specific to your circumstances and objectives. I will write the advantages and disadvantages of investing in California versus investing out of California to help you in your investment decision. Come back and feel free to post a comment or feedback!
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As you have mentioned...investors look for cash flow, speculators look for appreciation. You may get greater appreciation in San Fran, but I'd take a 8 or 9 CAP any day over a San Fran 4.
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