How is the cap rate calculated? Is it ROI if property bought for cash?

In Buying Property - Asked by j l. - Sep 24, 2009
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Answer(s)

Gary D.
Owner/Investor
Costa Mesa, CA

Cap Rate is calculated by Dividing the NOI by the Value

Sep 24, 2009
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Issa T.
Owner/Investor
Orland Park, IL

Cap rate (NOI / purchase price) is really a snap shot of a property's one year of NOI. When purchasing an investment property, using a Cap Rate is only one form of analyzing an investment. ROI is another tool to determine the investments return. It is used by calculating (gain from investment - cost of investment) / cost of investment. However, if you purchased a property and held it for five years and then sold it at a gain, you can use ROI to figure out your return at the end of five years. It really gives you a percentage gain or loss over a given time period. But to truly understand and determine your rate earned on each dollar that remains in an investment property, using an IRR method will give you a yield on your investment over a five, ten..etc...year holding period.

Oct 18, 2009
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Gregory G.
Broker/Agent
San Francisco, CA

Internal Rate of Return is what the IRR stands for.
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Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531
(415)225-9894
gregory.garver@gmail.com

Oct 23, 2009
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