Actaully, I have to admit I don't completely understand "the cap rate thingy." Would you mind going over how that works in your favor (and what would have to happen for it to no longer work to your benefit). Thanks--GGG
Investors compare returns for various assets when deciding where to put their money. 1-4 unit real estate is a fairly good comparable to 10 year treasury inflation indexed bonds (TIPS), albeit with more tax benefits, but greater risk. Thus when rates on the TIPS go down, the cap rate on 1-4 unit real estate goes down, and the price goes up. What is a cap rate? That is the net income you get from renting out a property, as a percentage of the market value. You take the net income figure (known as the "NOI," or net operating income), and divide that number by a percentage, which percentage has some relationship to the TIPS return. So, if the TIPS return is 2.4% as it is (that is the nominal rate, and you get as additional interest the CPI increases as well), a 3.5% NOI return of 1-4 unit real estate is within the ballpark.
Now take that little Spanish House. Let's assume that one can rent it out for $2750 a month, which times 12 equals $33,000 per year. Assuming that expenses are about 33% of gross income (taxes, insurance, maintenance, repairs and a vacancy or turnover factor), that leaves you with a net income (NOI) of about $22,000. If you divide $22,000 by the 3.5% cap rate, you get a market value of $628,000. The house is probably worth about $650,000, which means a cap rate of about 3.4%, so we are in the ball park, and assuming TIPS rates do not materially increase, and market rents to not materially decrease, there is not in my opinion that much of downside potential for price depreciation.
I hope that helps.