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October 2020

Found 1 blog entry for October 2020.

 

| What is a Cap Rate? | 

A metric used to gauge the approximate risk and rate of return on an income-producing asset, assuming the investor paid cash.  A cap rate is expressed as a percentage and derived by dividing the Net Operating Income (NOI) by the sales price or current market value.

Formula: Capitalization Rate = Net Operating Income / Current Market Value

Example:

Net Operating Income: $150,000

Current Market Value: $2,000,000 

Net Operating Income ($150,000) / Sales Price ($2,000,000) = 7.5% Cap Rate

 

In short, this means that you would have an approximate return of 7.5% if you paid cash for the property.

You may ask, is this an effective way to value a property? 

There are a handful of variables that are

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