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Rents, Selling Prices and Financing Premiums

Author

Listed:
  • G. Stacy Sirmans

    (Department of Insurance, Real Estate and Business Law, College of Business, The Florida State University, Tallahassee, FL 32306, USA)

  • C.F. Sirmans

    (Department of Finance, College of Business, Louisiana State University. Baton Rouge, LA, USA)

Abstract

This paper examines the effects of below-market financing on rents and selling prices of residential income properties. A recursive model is used to estimate rent and price equations in order to determine the effect of favourable financing on each variable. The results indicate that below-market financing has a negative effect on rent and a positive effect on selling price. Average monthly rent per unit with below-market financing is about $43 less than the average rent with current-market financing. The degree of capitalisation of the financing premium (as indicated by cash equivalence) in the selling price is less than 100 per cent. The average financing premium reflected in the selling price is $4818. Various factors, including differences in marginal and average costs and leverage effects, are presented to explain these results.

Suggested Citation

  • G. Stacy Sirmans & C.F. Sirmans, 1991. "Rents, Selling Prices and Financing Premiums," Urban Studies, Urban Studies Journal Limited, vol. 28(2), pages 267-276, April.
    • Handle: RePEc:sae:urbstu:v:28:y:1991:i:2:p:267-276
    DOI: 10.1080/00420989120080241
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    References listed on IDEAS

    as
    1. Sirmans, G. Stacy & Smith, Stanley D. & Sirmans, C. F., 1983. "Assumption Financing and Selling Price of Single-Family Homes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(3), pages 307-317, September.
    2. Jan K. Brueckner, 1984. "Creative Financing and House Prices: A Theoretical Inquiry into the Capitalization Issue," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(4), pages 417-426, December.
    3. Hugh O. Nourse, 1987. "The "Cap Rate," 1966-1984: A Test of the Impact of Income Tax Changes on Income Property," Land Economics, University of Wisconsin Press, vol. 63(2), pages 147-152.
    4. Karl L. Guntermann & Stefan Norrbin, 1987. "Explaining the Variability of Apartment Rents," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(4), pages 321-340, December.
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    Cited by:

    1. Do, A. Quang & Sirmans, C. F., 1994. "Residential Property Tax Capitalization: Discount Rate Evidence From California," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(2), pages 341-348, June.
    2. Do, A. Quang & Sirmans, C. F., 1994. "Residential Property Tax Capitalization: Discount Rate Evidence from California," National Tax Journal, National Tax Association, vol. 47(2), pages 341-48, June.

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