What&#039;s CAP rate?

When you are looking into investment properties, you will often hear CAP rate.

What's CAP rate? What is it???

This rate is the one of the benchmarks if this property is good investment or not.

How to calculate? It's pretty simple.

NOI (Net Operation Income) / purchase price.

What's NOI?

Net operation income is all the income from the rent - all the expenses.

Let's say ...

rent for the property is $2000 a month.

any expenses to run the house is $100 a month.

purchase price is $700,000

$1900 x 12 month = $22,800 (NOI) / $700,000 = 0.03257....

CAP rate is around 3%

Let's say ...

rent for the property is $4000 a month

any expenses to run the house is $100 a moth.

Purchase price is $700,000

$3900 x 12 month = $46,800 / $700,000 = 0.06685...

CAP rate is around 6%

This is not the only deciding factor to buy your investment property, but it's good to know.

Any questions?

TEXT : 310-525-0615

Email : hitomi@jhagents.com

Hitomi Gruenberg (DRE - 02145354)

What's CAP rate?