If the asking price is $525,000 and income is $76,000 on rentals property what is the cap rate?

and is this a good deal?
In Buying Property - Asked by lynn v. - Feb 26, 2010
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Answer(s)

Lou A.
Corporate Investor
Northlake, IL

If this is the NOI, then the answer is 14.48%

Feb 26, 2010
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Shirley J.
Owner/Investor
Alexandria, VA

525/76=6.9

Feb 26, 2010
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Cutting Edge R.
Broker/Agent
Decatur, IL

Lou is correct- if the Net Operating Income is $76,000 (Net is rents minus ALL expenses) then it is 14.48% which is pretty good- If the $76,000 is gross rents- then keep looking!

Feb 26, 2010
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Gregory G.
Broker/Agent
San Francisco, CA

Capitalization Rate = NOI/Price
Depends on the location, product type, and a million other things. Who pays the 76k? Can you get a loan? Management?
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531
(415)968-6065
gregory.garver@gmail.com

Feb 26, 2010
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Sharon W.
Owner/Investor
Portland, OR

Lou and Kathy are correct... the formula for Cap Rate is NOI/Price. So it depends on if the amount you reported as "income" is gross income or net income. If it is net income, then this is a great Cap Rate, but you have to ask yourself why and do some investigating... might be too good to be true!
If this is gross income, you can get an "approximate" net income by assuming the expenses are about 50%, or in other words, divide the $76,000 in half. That would make the Cap Rate on this property about 7.2%... and whether or not that is a good deal would depend on the market, what are the upsides, etc. Then you would want to further verify your facts by getting the actual expenses, etc.
Hope this helps!

Feb 27, 2010
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Daniel A.
Lender/Mortgage Broker
Schenectady, NY

Yes! Lou, Kathy and Sharon have it right!
Another way to look at this is; if the property NETS $76,000 to the investor and he requires a 14.48% return, what would he value the property at?
Check out the post from October 2009 on this topic:
http://dgalcorn.wordpress.com/2009/10/09/the-effect-of-noi-net-operating-income-on-property-value

Mar 1, 2010
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