Cap Rate

Capitalization rate or Cap rate, is often used in real estate investing to help determine value.

If real estate investors use cap rate, why wouldn’t you? After all, buying a home to live in is also an investment.

Cap rate, is determined by dividing the annual net operating income, or NOI a property generates by the price that you are able to purchase the property for. NOI is Gross Rental Income less Expenses (Taxes, Insurance, HOA, Mello Roos, Management, Etc.)

Annual Net Operating Income (NOI)

Cap Rate =                     —————————————————–

Purchase Price

 

$12,000 NOI

6% Cap Rate =                       —————————————-

$200,000 Purchase Price

Whether you are a home buyer or a real estate investor, knowing if the home you are about to buy is a good overall investment is important and can help bring about better decisions.

Yes, purchasing a home can be an emotional decision but it also needs to be a practical one. Visit Revestor.com to search for real estate by the things that matter the most

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