How do you figure the cap rate on a retail business--which expenses count in figuring net operating income.

In Selling Property - Asked by Brent P. - Dec 4, 2008
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Answer(s)

Mark and Paul B.
Broker/Agent
Pocatello, ID

In figuring a cap rate, it is appropriate to include all standard operating expenses. Typical exclusions on a pro forma cap rate are one time capital improvements, however if there is recurring maintenance that will result from such improvement, anticipated costs should be reflected if you know that they are coming and will be constant. You also wouldn't factor any loan interest paid, or owner distributions/paychecks taken into your net operating income.

Dec 5, 2008
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Joe V.
Owner/Investor
Plymouth, MI

Pretty much everything except your debt service.

Dec 18, 2008
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Chris S.
Broker/Agent
Coeur D'alene, ID

I would not utilize a cap rate on a business. Real estate yes, business no. Depending on the quality, size and longevity of the business, there are a broad array of rules of thumb applied to business valuation.
My quick rule of thumb ... 2-3 times net net net business income for a mom and pop business. No value for blue sky.
chris.schreiber@century21.com

Jan 16, 2009
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