Key insights
- The author argues that focusing solely on rental yield in real estate is akin to buying a bond with maintenance issues. They suggest considering location, growth potential, and demand as factors that influence the 'multiple' in a real estate valuation, similar to EBITDA multiples for companies. The piece implies that neglecting these factors can lead to missed opportunities for future value appreciation, but has limited direct impact on US equities.
Most people I talk to in real estate focus on one thing:
“How much rent does it generate today?”
But if this were a company, that wouldn’t be enough.
Companies are often valued using something like:
EBITDA × Multiple
So I started thinking about real estate the same way.
Rent ≈ EBITDA
Location / growth / demand ≈ Multiple
Two identical properties can generate the same rent…
But one is in a developing area with infrastructure coming, rising demand, better liquidity.
The other is in a stagnant area.
Same “EBITDA”
Different “multiple”
Which means… completely different future value.
So here’s the real question:
Are you buying properties for the income they produce today…
or for the multiple expansion they might get tomorrow?
Curious how you approach this.