what use is the 'Cap Rate' - Posted by Jon Forked River,NJ

Real Estate Investing
1

Posted by JJT on December 25, 2002 at 20:00:04:

Hi,

I’m a newbie and a new comer to this site.

I saw an article in Money Making Ideas Section that provides some examples on how to calculate the Cap Rates and how to use it. I like the idea presented there better than I have seen in various RE books. The title of the article is "Crash Course In Commercial Real Estate " by Jim Beavens
Commercial Real Estate Investor.

Here is the URL:
http://www.creonline.com/money-ideas/mm-028.html

Good luck.

2

what use is the ‘Cap Rate’ - Posted by Jon Forked River,NJ

Posted by Jon Forked River,NJ on December 21, 2002 at 20:08:02:

Hi guys,

I’ve read some REI books. They mention ‘Cap Rate’ here and there, but there isn’t any real explanation of what its use is. I understand its mathematical relationship to the price of a property and the income it generates, but thats it. Can anyone help me?

Thanks

3

Re: what use is the ‘Cap Rate’ - Posted by Scott-CA

Posted by Scott-CA on December 22, 2002 at 01:18:22:

If the only thing I knew about a property were the cap rate, then that cap rate would have to be higher than the rate I have to pay for a loan. Otherwise it?s not worth borrowing money to buy the property. Of course there are always more things to consider. And I don?t really have any experience testing that assumption/theory/conclusion.

4

Re: what use is the ‘Cap Rate’ - Posted by GL(ON)

Posted by GL(ON) on December 21, 2002 at 21:31:14:

This subject has been discussed extensively here. Try an archive search, you will find everything you need to know.

5

Re: what use is the ‘Cap Rate’ - Posted by mike

Posted by mike on December 21, 2002 at 20:48:01:

once you get income and subract off expenses, you get NOI…then u divide NOI by cap rate to get value…oops, i gotta go, but i live in NJ too so keep in touch

6

Re: what use is the ‘Cap Rate’ - Posted by Eric - GA

Posted by Eric - GA on December 21, 2002 at 21:11:29:

More specifically, You take total income from a property, and you subtract out all costs EXEPT the mortgage note. So, you will be subracting out Taxes, Insurance, Repairs, Management, Vacancy, etc. This will be your NOI. Take NOI and divide by the price you paid for the property, as if you had paid cash. Basically this is the cash on cash return…how much you would make, as a percentage of your investment, if you had bought the property outright. You can read more about this at www.johntreed.com , and see his article on positive cash flow.