what is "cap rate"

In Selling Property - Asked by dan e. - Feb 28, 2011
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Answer(s)

Debora F.
Fort Myers, FL

Cap rate or capitalization rate is the rate of return, based on the purchase price that would make investors purchase the property.
Example:
100 units x $1200 rent=$120000 Scheduled gross income per month
$120000x12=$1440000 scheduled gross income per year
$1440000-$144000 10% vacancy and rent loss=$1296000
$1296000+$78000 other income=$1374000 effective gross income
$1274000-$500000 operating expenses=$874000 net operating income
$874000/8% cap rate=$10925000 maximum amount the investor must pay for 8% cap rate on this property

Feb 28, 2011
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James B.
Researcher
Newport Beach, CA

The Capitalization Rate is the rate (or percentage ) per year, at which, the buyer recovers the purchase price of the property factoring in normal expenses. (not including costs for loans if any)

Feb 28, 2011
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Ed T.
Owner/Investor
Miami, FL

Yield a property is valued or sold at.

Mar 1, 2011
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Michael E.
Broker/Agent
Houston, TX

The cap rate is a percentage that relates the value of an income-producing property to its future income. It can be found by dividing the NOI (net operating income) by the sales price.

Mar 1, 2011
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Steve B.
Owner/Investor
Houston, TX

For a comprehensive discussion of cap rates (too lengthy to post here) see my LoopNet blog, Understanding Cap Rates, at the link below, or simply click on the View Profile link to your left.

Apr 3, 2011
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