Doing the math: Cap Rate

This bang-for-your-buck yet simple calculation resulting in a percentage makes up one small part of your overall financial analysis, but tells you big information you can take to the bank. Here we show you what it is, when to use it, what is optimal, & how to calculate it. Defined: Cap Rate is a ratio between the net income of the property and its original price (or “capital cost”) Key 1: When you think CAP RATE, think rate of return when: · Determining the maximum amount that an investor should spend given the annual return that investor plans to make (i.e. For current property) · Comparing similar properties (i.e. Tax Deferred 1031 Exhange) · Comparing properties that have different net i

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