A client of mine asked me the other day about how multi-unit properties appreciate compared to single family homes. Generally, as most readers of this blog will know, asking me a question with a boring statistical answer is like feeding a hog its dinner. The hog gets pretty excited, but the results may not be all that pretty.

In this case, the results are even a little messy from the hog’s perspective. It turns out that this is a fairly challenging question to answer, not in principle, but because the data I have at hand to answer it isn’t really up to the task. In the first place, what you’d really want to see is a long term study, but the software system our MLS uses changed in the Spring of 2003, and the old data was never imported. As a result, I’d probably have to call the intrepid but expensive folks over at Dataquick to buy the answer for anything further back than calendar 2004-2005.

Moreover, it’s more difficult in the case of multi-unit income properties to decide what to measure. Overally price per square foot is not readily available, so that’s out. That leaves average price, but average price depends in part on the makeup of the sample.

Well, enough of the caveats, as usual we’ll bite the bullet and take a look anyway.

In 2004-2005, the average price for a single family residence in Sacramento County increased 16.8%, while the average price for an income property of 4+ units rose a more modest 7.1%. In the 2005-2006 period, in contrast, the average price for a single family home increased 1.3% (made up largely of the gains in early 2005 outweighing the later losses), while the average price for an income producing property dropped 6.9%.

One way to sum this up is to say that investment properties seem to increase less at the peak of the market, and decline sooner. However, I’m inclined to think that part of the answer here is that multi-unit owners are less likely to be playing the same appreciation game that motivated investors — and owners — of single family homes. Multi-unit investment properties have a sort of built-in brake on runaway inflation in the form of their ability to generate cash flow. Let me put it another way: I’ve never had a single-family buyer ask me about what kind of cap rate they should expect, whereas multi-unit buyers love to ask that question. For those of you who don’t want to wade through the whole Wikipedia article, that’s as much to say, “How much net income will I get per year for every dollar I invest?”

Before you ask me that question, however, you should know that I can never seem to get a straight answer even from appraisers on that one. As I’ve mentioned before, it’s fairly tough to calculate this on more than one or two properties at a time, so you’re unlikely to find folks who have a license to lose quoting averages on it, unless they really have nothing to do.

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