Home > Financing and interest rates, Uncategorized > What is a market Capitalization Rate

What is a market Capitalization Rate

ReisReports determines the market cap rate by evaluating the financial data of similar properties which have recently sold in a specific market.

In short, the cap rate is equivalent to the return on investment you would receive if you were to pay all cash for a property, and therefore, it is our way of making the complexities of property investment more transparent.

By definition, the capitalization rate is a ratio used to estimate the value of income producing properties.

Cap Rate = Net Operating Income / Property Price

For example:         Purchase Price: $500,000

Income Per Month: $15,000

Expenses Per Year: $100,000

NOI = Annual Income – Annual Expenses

or (12 x $15,000) – ($100,000) or $80,000

Cap Rate = NOI / Property Price or $80,000 / $500,000 or 16%

http://www.reisreports.com/resources/understanding-cap-rates

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