CAP rate rundown

answered 2012-01-10 13:08:57 -0500

Dani Kramer CCIM
121 ●2 ●7 http://www.commercial1031...

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.