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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (6431)	10/30/2002 12:38:56 AM
From: Conan	Read Replies (1) \| Respond to of 306849

Chris, I believe Cap rate is equal to the sum of the annual rental payments a property would generate divided by the cost to acquire the property. So if the property cost $1M and annual rental payments would equal $82,500 then you would have a 8.25% Cap rate. Most pros consider 15% the minimum cap rate for an investor to shoot for if you want to make money regardless of short term real estate trends. It is hard to find cap rates above 10% in markets like California. Conan

To: Chris who wrote (6431)	10/30/2002 9:10:40 AM
From: Ramsey Su	Respond to of 306849

Chris, cap rate is the NOI (net operating income) divided by the price. Therefore in theory, that is almost like the interest rate on a CD or a bond. It is often used as a rule of thumb for comparative valuation, kind of like a PE. The 8.25% itself does not tell you anything unless you know how well the property is operating and how it compares to similar buildings in that market. Ramsey

To: Chris who wrote (6431)	10/30/2002 11:28:34 AM
From: The Duke of URL©	Read Replies (2) \| Respond to of 306849

Well, with all due respect for the missives you have attracted thus far, you now have enough information that you would eventually find the pony, but you do not have the definition of "Cap Rate" A cap rate is not a percentage and though it may be the reciprocal of the rate of return, and therefore related, it is not the rate of return. The cap rate is the number of years it takes to get back your original investment (the capital). That is to say that a cap rate of 8.25 means that if you invested 10,000 in your buddy's deal, you would expect to get back 1,212.12 per year, which would return your capital in 8.25 years. The rate of return, incidently, on the investment, would be ~12.12%. Since your buddy used the term "8.25%", he sounds like a fine financial genius who I personally would follow to the ends of the earth. He doesn't work for Citicorp, does he???? :))))))))))))))))))))0