tag:blogger.com,1999:blog-6710206903335502436.post-65874748187151860452007-11-16T07:29:00.000-05:002007-11-29T07:52:30.275-05:00This is a question that I get all of the time. What is a cap rate and how do you figure it? <br /><br />First of all a cap rate is short for capitalizaton rate. A cap rate is a ratio between the cash flow produced by a property and its capital cost (the price paid for the property). The rate is actually very easy to calculate. Here is a simple example:<br /><br />Annual Cash Flow (Net Operating Income)/ Property Price = Capitalization Rate<br /><br />For example, if a building is purchased for $1,000,000 sales price and it produces $100,000 in positive net cash flow (NOI) then:<br />$100,000 (NOI)/ $1,000,000 (sales price)= 0.10 (cap rate) = 10% The property's cap rate is ten percent.<br /><br />Wow! That is so interesting...now what?Chrishttp://www.blogger.com/profile/00308659711019757351noreply@blogger.com