Cap rate is the Net Opertating income (NOI) of a property over a year, divided by the purchase price. This does not include cost of any loans/mortgages and does not account for how much money you put down.
Net Operating Income (NOI): The annual cash flow of a property that has 100% equity (owned outright, i.e., no mortgage). Formula:
Scheduled Annual Rent
+ "other income" (such as laundry room sales, pet rent, and forfeited deposits)
- 5-10% of Scheduled Rent for a vacancy factor
- Operating Expenses (expenses specific to this particular property; perhaps 30-50% of rent )
= Net Operating Income
Cap Rate: A method of valuing property which takes into account rent, vacancy factor, and expenses. Generally used to value properties containing 5 or more rental units or commercial property. Definition: Net Operating Income (see above) divided by the Purchase Price, expressed in percent. Example: Net Operating Income of $100,000 divided by a Purchase Price of $1,100,000 = a 9% cap rate.
Its just ONE method of comparing similar properties.
Cap rate is the Net Opertating income (NOI) of a property over a year, divided by the purchase price. This does not include cost of any loans/mortgages and does not account for how much money you put down.
Net Operating Income (NOI): The annual cash flow of a property that has 100% equity (owned outright, i.e., no mortgage). Formula:
Scheduled Annual Rent
+ "other income" (such as laundry room sales, pet rent, and forfeited deposits)
- 5-10% of Scheduled Rent for a vacancy factor
- Operating Expenses (expenses specific to this particular property; perhaps 30-50% of rent )
= Net Operating Income
Cap Rate: A method of valuing property which takes into account rent, vacancy factor, and expenses. Generally used to value properties containing 5 or more rental units or commercial property. Definition: Net Operating Income (see above) divided by the Purchase Price, expressed in percent. Example: Net Operating Income of $100,000 divided by a Purchase Price of $1,100,000 = a 9% cap rate.
Its just ONE method of comparing similar properties.
It was described well above. You may want to check out this article also.
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