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.
If you have any questions on Multi-Family Investing, please feel free to give me a call.
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Venture One Realty has recognized that Connecticut Homeowners need and want a way to keep more of their hard earned equity when selling their home. Our Clients save Thousands of Dollars without sacrificing the services that are critical to maximizing the sale price of their home. We offer all the same MLS exposure, marketing tools, technology, quality of service, expertise, and personal attention as the Other Realty Companies but without the costly Real Estate Commission. You pay only 1%.
We are a full service Real Estate Agency that will manage the entire home selling process from listing to closing. You get everything you would expect from a traditional Real Estate Agent but with the added benefit of working with a technology enabled and customer focused team of Agents. Our results speak for themselves.
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About Venture One Realty, llc.
Venture One Realty has recognized that Connecticut Homeowners need and want a way to keep more of their hard earned equity when selling their home. Our Clients save Thousands of Dollars without sacrificing the services that are critical to maximizing the sale price of their home. We offer all the same MLS exposure, marketing tools, technology, quality of service, expertise, and personal attention as the Other Realty Companies but without the costly Real Estate Commission. You pay only 1%.
We are a full service Real Estate Agency that will manage the entire home selling process from listing to closing. You get everything you would expect from a traditional Real Estate Agent but with the added benefit of working with a technology enabled and customer focused team of Agents. Our results speak for themselves.
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