what is a cap rate

In Selling Property - Asked by cynthia l. - Mar 19, 2013
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Answer(s)

Bobby P.
Property/Asset Manager
Atlanta, GA

Hi Cynthia - I keep things simple - see below.
Cap Rate = Annual Net Operating Income / the Cost or Value.
This is the formula to calculate the Cap (Capitalization Rate) - It is a tool/number Investors use to determine if a property or investments will provide the returns that they are looking for...This is the basic answer. Hope it helps.
Bobby Patel

Mar 19, 2013
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Anthony P.
Broker/Agent
Clermont, FL

Beware. The Cap rate can be whatever someone wants. The numbers are not often correctly advertised. Ask for the data to calculate for yourself. A purchase price, debt service, operating costs all effect the Cap. If the Cap is too good then beware. Try looking at cost associated with owning a property and how much income can be generated to find out the ROI.

Mar 28, 2013
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Tai N.
Broker/Agent
City Of Industry, CA

Hi Cynthia, I agree with Bobby and Anthony. I would add that once you've determined the Cap Rate for your property, that you compare it to other like-kind properties that have sold in the property's market. Only then would you be able to determine if the valuation is above, below, or at market. If you do not have access to comparables, I would recommend you speak with a commercial real estate agent if you are seriously considering selling.

Jul 24, 2013
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