What is a CAP Rate?
by Michael Setunsky The Wikipedia defines the Capitalization or CAP Rate in part as: A contraction of capitalization rate, the cap rate is the assumed rate of return on an investment in real estate. The cap rate is commonly used in the valuation of commercial and investment property because it directly links the value to the income produced by the property. To determine the cap rate of a property, divide the net operating income by the sales price. From an income standpoint, the higher the cap rate, the better the deal. Note that a higher cap rate results in a lower value. Thus, newer properties in upscale areas will tend to show lower cap rates than their less desirable counterparts. Retrieved from “http://en.wikipedia.org/wiki/Cap_rate” As an example for establishing a CAP Rate and ultimately determining the Sales Price for a property, let us use a 10 unit apartment building. The market rent for each unit is $1,500.00 per month for a total Gross Income of $180,000.00 per year. An est
