Where can I find data on market cap rates?

In General Area - Asked by Joseph L. - Mar 23, 2010
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Brad W.
Norman, OK

Though the equation to derive the value of a property based on the income it produces is simple (I/R=V), there is simply no easy answer to establishing market Capitalization Rates. Capitalization Rates take into account all aspects of the property itself including age, condition, construction, tenant base, lease terms, and location as well as economic factors such as current interest rates, investor demand and ability to obtain financing.
Remember, by definition, the MARKET sets Capitalization Rates, not brokers, appraisers, bankers, or sellers. The best way to identify the Capitalization Rate for a specific property, property type and/or area is to become an expert in the market or enlist the services of someone who is.
All that said, I know sellers & investors don’t want to hear more questions instead of answers so here is my big swing at market cap rates: In Oklahoma, I’ve seen Capitalization Rates up 1-2% from where they were just two years ago. So for many typical property types that puts the range from 7-10%.

Mar 23, 2010
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Robert S.
Athens, GA

I get basic information on area CAP rates from research reports. Two good locations for this is Marcus & Millichap's website (you will need to sign up for free reports) and the National Real Estate Investor website. This will give you basic and typically Class A property CAP rates. Begining investors typically start out with Class C or D properties. They typically trade at CAP rates 3-4 percent higher then Class C and probably quite a bit more now. As important as knowing the 'market CAP' is knowing how to underwrite properties with realistic income, vacancy and expenses. Typically proforma CAP rates on Loopnet end elsewhere are much higher then the property could possibly perform at. The art is finding one that performs. Take a close look at the reports and other actual operating statements to find typical expenses and vacancy as well. The last way to find market CAP rates is by doing your own research. Look at the properties in the your market that have traded and compute CAP rates based on your proforma NOI rather then the 'LoopNet Proforma'. Lastely, never buy on Proforma. Insist on the two prior year taxes to get get the actual. Pay for actual. The difference between actual and proforma will be you value added profit once you improve the operations.

Mar 25, 2010
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