Investing in a property is not a new concept. We know of our elders who have always advised us to find the right opportunity and capitalize on it when it comes to real estate (at least this was the case in my house). While I was exploring my options, I was advised to look for cap rate of the property. I had no idea what it was so I asked my father about it. I am going to explain it to you and let you know the ideal cap rate rental property.
What is Cap Rate?If you are as clueless as I was, let me tell you what is cap rate. Short for capitalization rate, cap rate is basically the potential of a property to generate rental income. It is a metric to evaluate property investment scope and valuation.
Cap rate rental property formulaThere is a formula which is used to calculate Cap rate. Here it is:
Cap Rate= Net Operating Income/ Current Market Rate Of the Property.
Talking about ideal cap rate rental property, I came to know that as of 2020, it was somewhere between 8% to 12%.
Factors affecting the cap rate of rental propertyHere is all that affects the cap rate rental property
Age of the building
Reputation of the tenants of the building
Lease tenure of the existing tenants
Demand and supply dynamics of the micro market
Business scenario in that market
Macro fundamentals like population growth and employment opportunities in the region
This is all you must know about what a good cap rate for investment property.
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Authors Of The Question
What a good cap rate for investment property?
Kartik
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1 Answers
3 Year
2021-12-29T13:18:13+00:00 2021-12-29T13:18:44+00:00Comment
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