As CAP Rates rise, prices fall. For Business Majors, it's the same formula as Bond Valuation.
For a given property:
$100,000 Cash Flow / 10% CAP Rate = $1,000,000
For the same property:
$100,000 Cash Flow / 12% CAP Rate = $833,333.33
To get Cash Flow:
Revenue - Expenses = Cash Flow
Expenses include all cash charges except interest as CAP rates are based on a cash purchase. Do not include vacancy rate or depreciation.
Mar 10, 2014