AAA320 Listener Question: What is Cap Rate?
Creative Real Estate Podcast · Jason Lewis & Adam Adams
November 29, 20196m 42s
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Show Notes
In this podcast episode, you will learn:
- Cap rate means how you capitalize after all of the expenses (rate at which you get your money back)
- Ratio is purchase price and divide it by NOI
- Cap rate is important because commercial multifamily properties are valued by cap rates instead of their comps.
- It is a function of (buyers perception of) risk. Buyers are willing to pay more if they see area is safe and building is new.
- Age of propertiy,
- Credit worthiness of current tenants
- Diversity of Tenants
- Length of Leases of current tenants
- Underlying economy in the area
- Net Operating Income (NOI) - Gross potential rent minus expenses (except mortgage)
- Side note: It is always good to assume expenses (for B and C properties) are a ratio of 50%
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