Posted by ray@lcorn on July 26, 2002 at 11:47:37:
Most use a cap rate as a quick indicator.
NOI/Price = Cap Rate
Then you have to decide what your investment goals are. If you need a 20% cash return then you likely will be looking for properties with cap rates of over 12%. That means if the property is priced at a 10% cap rate on pro forma numbers, your first job is to get the real numbers and determine the actual “going in” cap rate.
Once you have a good handle on an accurate projection for the property based on your operation and loan terms use a derivative cap rate to establish the maximum price that can be paid for the property to meet your investment goals. You can read more about using this tool at the following post… http://www.creonline.com/commercial-real-estate/wwwboard5/messages/4435.html