Lots of good responses about the calculation of Cap Rates. However, keep in mind that a Cap Rate is just a quick means of comparing investment opportunities.....and it's probably most meaningful to "all cash" buyers. Once an investor brings financing into the picture he or she should look close at Cash on Cash Returns, Internal Rate of Return and other analysis techniques that take into consideration the financing aspects of the investment. In other words, two different investors will likely have different returns on their investment due to their different approaches to financing the acquisition.
Real Estate Dynamics, Inc.
Oct 7, 2010