# justify an Income properties price using CAP RATES

justify an Income properties price using CAP RATES

1)get the Capitalization Rate for comparable recently sold properties in the area.
2)multiply (x) the CAP RATE by the VALUE of the property to determine the NET OPERATING INCOME(NOI) that would be needed to justify the price.

EXAMPLE: a CAP RATE for comparable apt. complexes is 12% or .12 and the asking price for the complex under purchase consideration is \$300,000

\$300,000 x 12% = \$36,000 in NET INCOME that would be required to justify this asking price, CLASS DISMISSED, SULLY

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Good Info

Nice sully. Where i am cap rate is 8 and that makes it a little hard trying to get a hml to fund a commercial deal. So i calculate using 10 percent rent increase across board and it makes mz numbers work out better.

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Anita
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"FAILURE IS NOT AN OPTION"

roger that

ant, i but can't help but to laugh to myself right now,aww man, it feels crazy being back and all... SULLY

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Thanks

Sully for the info. I've actually been wondering about this and hadn't gotten around to asking yet as the commercial stuff (mostly what cap rate is used for out here anyway) isn't first on my list to attack. That's good to know though. I can start looking more confidently knowing this formula.

Thanks again,
Jeff

no prob....jeff

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Cap rate vs. Property value

I prefer to set my own expected rate of return (Cap Rate). For example I won't invest in a property unless I'm getting at least 12%. I'll then look at the numbers provided by the seller to determine their NOI. Then divide the NOI by the Cap rate to determine what I can afford to pay for the property. For Example: NOI is \$15,000 per year. \$15,000 divided by .12 means my maximum investment in the completed property would be \$125,000.

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nice, mr. connor

i see, well, thanks, SULLY.

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