My experience (gained through second hand knowledge) is that properties will never cash flow, after all expenses, with just 0-10% down. Why would they ever? It has to do with the attractiveness of investment. If I could get a 100% loan and break even on a house the first year, I would make enormous profits over the next years as both rents increased and the equity increased. That kind of investment would blow away any other type (stocks, money markets, etc.) for total returns, especially considering the tax benefits of equity build-up. Equity would definitely increase in this environment because it is a function of rent increases, and they could go up at least the level of inflation. I, and everybody else who has a rational investment attitude, would continue buying houses until they were bid up to so that the total return on the property in the long run was no more attractive then alternative investments of similar risk. This is what happened in the 90s and early part of this decade. As the investment environment of stocks (dot com bust) and money markets (interest on T-bills, bonds) dropped to multi-decade lows, people bid up houses to the point their total returns matched those other investments. This was a rational process, and my mind it was until 2002-2003. But, as is usually the case, the bidding went way past the rational price and reached bubblemania where prices got way ahead of themselves, which was the situation the last 2 years.
Given the current interst rate environment and the other returns on attractive uses of capital, prices and rents will not reach the 12.0X gross rent multiplier, ever. The new rational level given interest rates at the moment is probably 14-16X times rent. I guaranttee you will never see an 8-12X ratio given our current investment opportunities and economy. The only way to see that level is to have interest rates climb back to where they work in 1995 (>8.0%) or have much higher unemployement (>7.0%). If these become the case we will be back to 1995, and it will repeat.
