I have had the cap rate explained to me a few times and everytime I get a diiferent explanation. How do you figure a cap rate, what numbers do you want to see before you buy/sell? Thanks.
Cap rate= Net income before debt/purchase price. Essentially it is the rate of return on the entire cost of the deal, both the equity and the borrowed money. It allows you to compare property without being mislead by the effects of leverage.
If its a development deal where I have a plan for what I'm going to do with it in the near future I would even consider a negative cap rate. In other words the building has no income but it does have expenses.
But with that exception I typically want to buy on 10% to 15% cap rates. Many people here will do SFR deals with caps as low as 4 or 5 where they are convinced that the area is appreaciating. Not usually my game but who knows.
Cap rate= Net income before debt/purchase price. Essentially it is the rate of return on the entire cost of the deal, both the equity and the borrowed money. It allows you to compare property without being mislead by the effects of leverage.
What is the minimum cap rate you are willing to consider?
If its a development deal where I have a plan for what I'm going to do with it in the near future I would even consider a negative cap rate. In other words the building has no income but it does have expenses.
But with that exception I typically want to buy on 10% to 15% cap rates. Many people here will do SFR deals with caps as low as 4 or 5 where they are convinced that the area is appreaciating. Not usually my game but who knows.