I never took the time to understand cap rates – bought everything based on gross rent multiplier (GRM) where price = GRM x annual rents

when I started buying in 1998 GRMs for 2-4 units west of I-5 were still in the 10ish area – bought a Mission Beach 4plex in 1999 for 11.5 GRM and thought I was paying too much but rents were rising quickly at the time – by the time I stopped buying in 2001 GRMs were 14 and 15 even in areas like North Park – wasn’t uncommon to see properties listed as high as 21-22 GRM (dreamers!)

in 1998 and 1999 I could ALMOST but not quite make the numbers work (break even or positive cashflow) but rents were rising and I had the income to cover negative cashflow – I figured I’d get to breakeven cashflow within a few years

by 2001 it was obvious to me that prices had gotten out of control – there was no way to make the numbers work or even to pretend that they might work at any point in the near future – I started selling my properties in 2002 and was out of the rental market by 2006 – one of my properties sold at 18 GRM