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