What Is A Cap Rate?
The capitalization rate, or cap rate for short, is an indicator on how quickly you will get a return on your real estate investment. It is important to remember two things. First, the cap rate for a “safe” investment, such as a certificate of deposit (CD), is usually in the low 1-2% range. Second, this cap rate you are about to calculate doesn’t take into account factors such as increases in property value, boosts in monthly NOI, or the many tax breaks afforded to owners of multifamily properties.
To calculate the cap rate, all you do is take your monthly NOI and multiply it by 12 (to get the annual number) and divide that number by the property’s current market value. The key thing to understand about cap rate is that higher is not always better. A higher cap rate generally denotes higher risk and higher return. While a lower cap rate, conversely, indicates a lower risk and lower return.
A good rule-of-thumb is to shoot for a cap rate in the 5%-10% range. Anything lower and the investment may not have enough yield, anything higher and you want to be sure you understand all the risks associated with the investment.
We here at CT Cash Homes are different than any other buyers. After you contact us and give us the property information, we will make you a fair, all-cash offer within 48-hours, and that is not even the best part. We never tell you when to close. YOU get to choose. If you are looking to close quickly, we can wrap up the deal and get you the cash in as little as 7 days. To get started, you just need to give us a bit of information about your house and the situation that you are in. To contact us, simply fill out the form on this page, or give us a call at (860) 249-0950 for a faster response. It is our goal to make your life easier by getting you out from under the property that is causing you problems and stressing you out. We can do this by paying a fair and honest price for your house quickly.