Determine Value - Commerical - Cap Rate - Posted by Darin

Posted by Eric C on August 25, 1999 at 14:06:45:

The formula for determining property value by cap rate is simply: NOI (the net operating income) divided by the cap rate (the rate of return desired).

For example, a property that currently has an NOI of $5000 would be valued at $ 50,000 using a cap rate of 10%. ($5,000 / .10) =
$ 50,000.00

Most problems occur with determining the true NOI that a property produces. NOI should include everything, all expense items, except for the financing information (mortgage, payments, interest).

Be sure to compute the NOI using accurate figures, not projections of future income. Only pay for what the property is now producing - not the promise of future income.

Warning - while many investors use cap rate calculations, few will agree to the same cap rate. Some will hold out for a higher rate of return; others will settle for less. It often depends on their individual appetite for risk with each person making their own calcuations as to the potential profit (Upside) versus the potential downside (Regret) in

Determine Value - Commerical - Cap Rate - Posted by Darin

Posted by Darin on August 25, 1999 at 12:11:34:

what is the simplest way of figuring out the cap rate for a commercial property.

Value ???

Quick run down. This is a 5,000 sf. house that is broken up into 3 -1bed and 1- 3bed 2 bath aparts. There is a detached 4 car garage with a loft up stairs. The garage can be rented also. Situated on all sports lake front on 2 acres in an area of huge demand.

Rents - tennants pay utilities, cable , water only

3 aparts. $ 2,100 ($700 EACH)
1 house 2,000
1 loft 600
Total 4,700.00


Taxes 316
Ins. 1,500
Maint of
grounds &
House 1,000 average
Mortgage cost $$$$
Total 2,816.00

As a whole house, as a single family home, it comps out about 475,000-525,000.

If you look at it as a commercal property, does the figures come out differntly?? And what is the formula to figuring out value by cap rate, lets say 10%

I know hardley anything about commercial or multipal units so I am trying to learn fast. The seller has no clue of what he is doing, so that makes two of us. But what I do know, this is the type of sellers we are looking for. Open for anything. But I have to supply him with facts and figures to back up my offer and terms.

Re: Determine Value - Commerical - Cap Rate - Posted by Steven Tiralongo

Posted by Steven Tiralongo on August 26, 1999 at 08:27:24:

Go to the money making ideas and read “Crash course on commercial porperties” (or something like that).
It will help. Good luck. let us know how it went.