How do I calculate a cap rate on a property? Is it the same as a gross rent multiplier?
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To calculate a cap rate, divide the net operating income by the sale price.
Example: $240,000 (NOI) / $3,000,000 (Sale Price) = .08 or 8% (The Capitalization Rate)
A gross rent multiplier is similar to a cap rate except it uses the gross rents instead of the net operating income. A cap rate will give you a better picture of how the property performs with expense, but keep in mind that the cap rate can be manipulated. You need to verify all expenses and assumptions. For this reason some brokers still prefer to use the gross rent multiplier.
Asked: 2012-01-10 12:39:49 -0500
Seen: 26 times
Last updated: Jan 10 '12