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Are apartment investors "under water" today? In other words, is their property currently worth less than they paid for it? It depends on when you bought, and when you sell.
Investors who bought apartments in the Tri-county market (King, Pierce, and Snohomish counties) before 2005 are doing fine. The Apartment appreciation realized by sellers graph shows that the typical seller this year saw his property appreciate by almost 4% compounded annually over the time he owned it. That's not bad, considering they are selling into a declining market. But it is the lowest appreciation rate sellers have had in a dozen years.
Half the properties selling so far in 2009 appreciated between 3% and 5% a year. The median holding period for sellers this year was 16 years, meaning a large share of this year's sales were originally purchased in the early to mid 1990s. That was considered a reasonable "buy low" point.
What chopped appreciation rates this year is simple to figure out. Sellers are getting out at a "sell low" time. Remember the advice, buy high, sell low? Wait, that's not it. Anyway, they are probably doing the right thing. Look at the graph to see how appreciation returns deteriorated for sellers through the first half of the 1990s. More about that later.
This year's appreciation rate on sales is a big drop from the past few years, when sellers in 2007 and 2008 booked appreciation rates over 7% compounded annually. That's just what those investors got from appreciation. It doesn't count the benefits from cash flow, mortgage amortization, or tax savings. They did so well because they sold into a rising market.
Sellers this year sold into a declining market. Even so, they still managed to squeeze out a reasonable annual rate of appreciation. Over the past 20 years, the typical seller booked a 4.7% compound annual rate of appreciation on their investment.
The three years, 2006 through 2008, were the "golden years" in the local apartment market. Please comment on this article
