If a CAP rates considers the age of the property (1970s),

and we update the property, is the new CAP rate based on a newer property? 1970s multi family at a 9% CAP, would it be a lower CAP rate if totally remodeled? Avg. for this area is 6% on 1990s properties. Would it be compared to a newer property?
In Buying Property - Asked by Ken C. - Mar 30, 2009
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Matt H.
Santa Rosa, CA

A Cap rate does not take age into consideration. It is simply the relationship of the NOI to the Price of the property.
Cap Rate = NOI/Price

Mar 30, 2009
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Paul S.
Glendora, CA

Cap rate is only a measure of the relationship of the price to the income expressed as a percentage. It does not take into account debt, age or anything else and only for 1 year (Cap rate= Net operating income/Price. However a newer property may have a higher value than one built in the 70's. If the NOI was the same on both properties (which would be doubtful) and the newer property had a higher value the cap would be LOWER on the newer property. A low cap is an indication of a high price relative to the income it produces. So what you do to the property affects its price, rents and therefore cap. Older properties in your example are selling for less money (9% cap) than the newer ones (6% cap). Play with the formula. If improving your property with increase rent it will change the cap and draw it closer to the new properties. If you would like more information please contact me a paulsylvester@remax.net

Apr 1, 2009
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