How To Calculate CAP Rates

Dated: 11/15/2016

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 By examining the actual income (or rent) that the property generates and then deducting operating expenses (not including debt costs), the investor arrives at a property-level net operating income (or NOI). Once you determine the NOI, you simply divide that by the cost of the property (that is what’s the price you are buying or selling the subject building). I ran across this infographic: c1

While this method of valuation may appear simple, the use of the tool can be extremely valuable. As a REIT analyst, I use cap rates on a daily basis for comparing the values of various buildings that are bought and sold. In general, a lower cap rate indicates there is less risk associated with the investment (due to increased demand) and a higher cap rates can be associated with higher risk alternatives

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Deysma Kettering

When you consider buying or selling a home, potentially the largest financial commitment and most important investment in your life, there are no more powerful and important words than reliability and....

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