how do I determine cap rate?

In Selling Property - Asked by Colleen L. - May 8, 2017
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Answer(s)

Matthew S.
Broker/Agent
Dallas, TX

NOI/Sale Price= CAP Rate

May 8, 2017
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Juanita A.
Broker/Agent
Hollywood, FL

"A capitalization rate is a quick estimate of the return an investment would give you based on the income it produces and the price you pay for it, at a specific point in time. So, to find the cap rate for a commercial real estate asset, you divide the net operating income (what the building could potentially produce, minus estimated vacancy, plus other income, minus expenses not including loan and investor's tax) by the sales price. If you want to use a market capitalization rate (what other investors are getting for a similar asset in the same or a comparable market) to know how much you should pay for the asset, then you could ask brokers or lenders, and browse listed properties with advertised cap rates. Usually, they are advertised above actual market rates, but you can use an average. Cap rates are very subjective and only give you a general idea of value AT A SPECIFIC POINT IN TIME. For a more accurate, personalized analysis, you should use the net present value of the cash flows. This means you would project income and expenses based on property and market data, project the time you would own it and the price you could sell for, discount the cash flows at the rate you expect from your investment and find the price you should pay to stay at that required return."

May 9, 2017
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Rick S.
Owner/Investor
Sacramento, CA

If you need help with any other questions. Check out this link

May 9, 2017
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Manoj S.
Broker/Agent
Los Angeles, CA

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate. The capitalization rate is used to estimate the investor's potential return on his or her investment. ...
Capitalization Rate = Net Operating Income / Current Market Value.

May 9, 2017
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john i.
Owner/Investor
Tampa, FL

net divided by sale price . What the cap. will tell you is merely the return for one year as if the property bought cash on cash, you have to break the deal down depending on the financing used the cap will change.

May 9, 2017
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Jacob L.
Broker/Agent
Los Angeles, CA

Net Operating Income / Sales Price = Cap Rate

May 9, 2017
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