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Old 06-07-2006, 03:02 PM
Trying
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Default Capitalization rate eqauls cash flow

Does anyone here figure out the capitalization rate of a property before buying it? I am reading "The complete Guide to Investing in Rental Properties" The author sugeest cap rate should be between 7 to 12 percent. Cap rate is the net (after expenses) operating income divide by the purchase price. So if the cost 130k and the net operating income was 9100.00 you have a cap rate of 7 percent. I do not think it is possible to make 9100 profit off of one rental. I do not see how you can get a cap rate of 7 to 12 percent. HELP
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Old 07-31-2006, 07:24 PM
cheesi
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Default Cap Rate

The problem now is that a lot of properties are way over priced for investment potential. That is why the cap rate is too low.
The trick is to find a property for sale under circumstances that lower the purchase price. We have two properties with a 9.44 cap rate and a $860.00 month positive cashflow. We were able to buy it off market with a motivated seller
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Old 09-04-2006, 04:04 PM
1031store
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Cap rates can vary wildly on different product types, product quality, location quality, tenant quality, financing rates... and so on...

The book is trying to put a very broad range on the category of CAP rates... but you should have a good idea of your cap rates going into an investment...

Be a little cautious though... cap rates are often calculated based Scheduled rents... you have to be confident that you will collect that number - vacancy and also have a good ballpark on your expences... double check your expence figures when calculating NOI.

Take it one next step too: figure out your Cash-On-Cash return (NOI minus debt service/amount down)... I personally look at that more closely.

You could have a 10 cap... but because of factors your lending rate is 10% at a 20 yr am... Your first year C/C makes this a tougher investment to swallow...

Hope this helps...
Starke
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Old 09-04-2006, 06:53 PM
r8rpwr
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Quote:
Originally Posted by cheesi
The problem now is that a lot of properties are way over priced for investment potential. That is why the cap rate is too low.
The trick is to find a property for sale under circumstances that lower the purchase price. We have two properties with a 9.44 cap rate and a $860.00 month positive cashflow. We were able to buy it off market with a motivated seller


This is the problem I have in some surrounding areas lately. I have to pick and choose carefully what city I buy in; the rents are lower in some areas but at the same time the home prices are low enough that we will cashflow. Some of the larger cities are getting priced out of range of the market rents. This area doesn't have fast enough appreciation to buy something that doesn't cashflow. IMO anyway.
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