What Is Everyones Cap Rate. Net Income/ Investment:?

I am new to investing and I am currently looking at a rental (Triplex). The realtor I am speaking to wants to know what my CAP rate is (return on investment). Can someone please give me an example as to how to calculate this properly.

I also like to know what kind of CAP rate investors usually go by.

Please excuse the goofy question, but I just want to be sure.

Thank you.

Comments(3)

  • tjm5288th September, 2004

    Thank you for the quick response.

  • ray_higdon8th September, 2004

    You need to run your own cap rates as the seller will put a cap rate of 12-13 by weasling the costs down. For example, be careful of the insurance and taxes as those will go up with a bigger purchase price.

    8% probably is average but you want to shoot for 9.5% and above.

    Ray Higdon

  • Ruman8th September, 2004

    Hey Rmdane, nice to see another Des Moines person around here!


    Quote:
    On 2004-09-08 10:47, rmdane2000 wrote:
    Cap rate = NOI/(Purchase Price)

    NOI = Net Operating Income, or Gross Rental Income less vacancy estimate, utilities, insurance, reserves for replacement, maintenance and repair, management expense, legal/misc office expense, etc.

    Higher cap rates mean a higher rate of return and generally more risk. I couldn't tell you what good cap rates are in your city. You just have to observe them from other sales. Generally speaking, multi-family sales, anything greater than an 8% cap rate after all those expenses I listed is average.

    Actually, what I meant to say is an 8% cap rate is average.

    <font size=-1>[ Edited by rmdane2000 on Date 09/08/2004 ]</font>

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