Have you ever wanted to become a real estate investor using the capitalization rate (cap rate) to help you generate a rate of return profits? If so, the below informational guide is for you.
The informational guide will let you know how cap rates can be applied to your future to help make you money. By definition cap rates refer to the rate of return you expect on real estate investment property. Cap rates are measured by the net income your investment property will bring you.
Cap Rate Formula
Once you know the cap rate formula, you can apply it to every real estate property you purchase. It’s easy to learn and gives valuable insight as to the worth of your investment property. The formula is:
- Net Operating Income (NOI) divided by the current market value of asset
The NOI is the annual income your property generates after you deduct all your expenses. The market value of your asset is just what it says. It is the current value of your asset on the open market.
Common questions for cap rate investors is what does the cap rate future hold? Is this a good time to invest in real estate? What type of real estate investments gives the best return?
There are proprietary sales processes that can not only sell your property but find the right buyer for your valuable commercial property. Finding the right buyers to pay high-end prices for offices takes skill and astute knowledge.
You may want to sell the industrial properties or retail buildings you have in Massachusetts and New Hampshire for a tidy profit. When you do decide to buy or sell you need to know how theoretically you can read possible future cap rate returns so you can protect your interests.
Cap Rate Theory
In theory, different cap rates mean different levels of risk. The lower the cap rate, the lower the level of risk. Higher cap rates represent higher levels of risk.
As an investor, reading into cap rate futures means you have to be able to determine the risk-adjusted return you need. In other words, you need to gauge the right cap rate given the deal’s risk level.
Gauging Your Future Cap Rate
It sounds simple enough, but it is anything but easy. To gauge your estimated return from a potential investment’s cap rate you will:
- Assess the location
- Define the asset type
- Look at the interest rate environment surrounding the investment
To do the above accurately, you need access to current national, state, and regional databases. You will need to know what other investors are acquiring near your potential property? It’s always about the current demand for commercial real estate market and the economy’s impact on property values.
Your Investment Future
When you’re ready to grow your money with commercial property investment, your future is already here. Cap rates are well-supported in the current market by the levels of rising net operating income. Inflation pressures are minimal, and interest rates are low and consistent.
When you move forward, we have the knowledgeable and experienced consultants you need. Reach out to us to get a good return on your commercial real estate investment. Your successful and profitable future awaits.