what is the average cap rate

In Buying Property - Asked by Samantha C. - Nov 13, 2012
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Answer(s)

Matthew U.
Broker/Agent
San Diego, CA

The avg cap rate is different in each area for different types of property classes.
Cap rate is calculated by the NOI over the price. It is essentially the most or the cap, like the top internal return that you can get from the building if you were to purchase it with all cash. With leverage, especially today's very low rates, it is possible to gain from the leverage and have the cash on cash return exceed the cap rate. The cap rate is a good way to compare buildings, since we assume that the financing will be the same, the cap rate shows how much money a building or income property is generating after the normal expenses as a function of the total price for the building.

Nov 13, 2012
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Wyatt P.
Property/Asset Manager
Irvine, CA

Right now it ranges from 5%-8% depending on the level of risk involved in the

Nov 13, 2012
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WM C.
Owner/Investor
Atascadero, CA

In general if you pay more than 100x gross monthly rent, you will be paying too much. Cap rates are much to subjective to be a reliable index guide -- however in general if you aim for anything less than an 8% cap rate you will be overpaying.too much and only the tax assessor will be happy.
, taxes and other expenses will eat up

Nov 13, 2012
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Alex M.
Broker/Agent
Irvine, CA

Depending on the location and the product type the average cap rate is between 4.5 to 8% cap rate. In office product your looking more closer to a 7 to 8% cap rate on stabilized asset. The cap rates on office buildings have dropped significantly compared to last year however it will not be too long from now to see the market shift again.

Nov 14, 2012
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REMAX F.
Broker/Agent
Sugar Land, TX

the first answer is correct the average Cap Rate depends on the area you're in and the type of property you are looking at

Nov 14, 2012
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Matthew R. H.
Owner/Investor
Concord, ON

There is no such thing as an average cap rate unfortunately. The Cap Rate is the Net Operating Income (NOI) divided by the Price. What determines the price and therefore the Cap Rate is how much the Seller and/or their Advisors are willing to pay for that income stream (the NOI). Examples. (1) a Building with Fedex as a tenant may sell at a 5% Cap Rate as the covenant value and strength of the tenant is presumed to be outstanding. (2) a building with single location non-publicly traded manufacturing company may sell at a 10% Cap Rate, as strength and stability of the Tenant is not considered as strong as example (1). Hope this helps.

Nov 14, 2012
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L. Joseph P.
Owner/Investor
New York, NY

The Cap rate is the economic return on an investment and is influenced by various factors. In the current economic climate, the cap rate in real estate has to be compared to alternative investments, including stocks, bonds and cash investments (money market accounts, certificates of deposits).
With interest rates as low as 1% per annum, major real estate investment firms are now considering prime commercial, multifamily and mixed-use properties at a 3% cap rate. So, far a $10 million dollar building, the investor would want to see net operating income (gross rents, less all operating expenses, real estate taxes and a management fee) of at least $300,000.
In addition to the cap rate, the major real estate investor is looking at the potential for rent appreciation, the building future appreciation in value, and development potential of the property.
Investors who are seeking properties with 8% to 10% cap rates are either looking at lower value properties with risk factors, or are living in the past and will lose out in the coming real estate boom.

Nov 15, 2012
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lt p.
Owner/Investor
Sacramento, CA

The flaw is in the question. Why do you want to know the "average" cap rate? Why? What do you think that will do for you? The question suggests a naive customer in need of a client relationship with a qualified representative. Yes there are "averages" that can be calculated. but they are meaningless and useless to the questioner.
A better way to question would be " what is the typical/ mode* of cap rates for XYX type of property by a +++++++ type investor, in thus as such city or town.
That said ... i still mainitain that even if the questioner had the answer., he still would not know how to use the "average".. its still meaningless and shows a lack of understanding of what a cap rate is.
So we can say that big insurance compainies pay a higher price/ lower cap rate than reits.
But then the subject property has to meet a certain high standard to quaiify to be of interest to large insurance compainies.
So then what does joe sixpack pay for the little strip retail in his nerighborhood? the little strip has been 50% occupied for the last 8 years. What so called " cap rate" would you recommend for this type property? Now do you see why "average" cap rates are of no use?
I could go on .... but stop me before I commite verbicide...
*MODE: the greatest number of identical occurances in a group.
For further assistance Ltp1@pacbell.net

Nov 16, 2012
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