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I think you are confusing what a cap rate is - I gave an example in a previous post - it is related solely to income.
$700K condo, $700 maintenance/HOA fee, $3,000/monthly rent, and property taxes yields a cap rate of about 3.5% (actually less, you still have to deal with GET taxes) assuming you don't have to put a dime into the property and it is always rented. .
Where are you getting a $700K value for the condo without a market cap rate?
We think a bit differently - I'd rather have a $500,000 property with no money down and positive cash flow
Please read what I posted and if you are going to quote me please include the full sentence. I would agree that a $500,000 property with no money down and positive cash flow is the better choice.
Do you disagree with my choice of the TWO choices I gave?
Where are you getting a $700K value for the condo without a market cap rate?
$700K = price paid for the condo.
I still think we may be confusing what you think a cap rate is:
DEFINITION OF 'CAPITALIZATION RATE'
A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor's potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. If you want to get technical, it is basically the discount rate of a perpetuity.
Capitalization Rate = Yearly Income/Total Value
Also known as "cap rate".
I still think we may be confusing what you think a cap rate is:
DEFINITION OF 'CAPITALIZATION RATE'
A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor's potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. If you want to get technical, it is basically the discount rate of a perpetuity.
Capitalization Rate = Yearly Income/Total Value
Also known as "cap rate".
A very poor and inaccurate definition of a cap rate.
Hmmm, you like this one better - although it says the same thing as the other one.
The capitalization rate is a fundamental concept in the commercial real estate industry. Yet, it is often misunderstood and sometimes incorrectly used. This post will take a deep dive into the concept of the cap rate, and also clear up some common misconceptions. Cap Rate Definition
What is a cap rate? The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%. Cap Rate Example
Let’s take an example of how a cap rate is commonly used. Suppose we are researching the recent sale of a Class A office building with a stabilized Net Operating Income (NOI) of $1,000,000, and a sale price of $17,000,000. In the commercial real estate industry, it is common to say that this property sold at a 5.8% cap rate.
Hmmm, you like this one better - although it says the same thing as the other one.
The capitalization rate is a fundamental concept in the commercial real estate industry. Yet, it is often misunderstood and sometimes incorrectly used. This post will take a deep dive into the concept of the cap rate, and also clear up some common misconceptions. Cap Rate Definition
What is a cap rate? The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.
Cap Rate Example
Let’s take an example of how a cap rate is commonly used. Suppose we are researching the recent sale of a Class A office building with a stabilized Net Operating Income (NOI) of $1,000,000, and a sale price of $17,000,000. In the commercial real estate industry, it is common to say that this property sold at a 5.8% cap rate.
That's a better definition than the first one. It addresses NOI but assumes that the reader understands what operating expenses are. You obviously do not based on your $700,000 example above.
The example is correct that if the property sold for $17,000,000 and the NOI was $1,000,000 then it sold at a 5.88% cap rate. Lets say the property was 100,000 square feet. We could then say it sold at $170 a square foot. Now we have two numbers for the subject property. Whee! Both numbers are meaningless at this point.
That's a better definition than the first one. It addresses NOI but assumes that the reader understands what operating expenses are. You obviously do not based on your $700,000 example above.
Quote:
Originally Posted by whtviper1
$700K condo, $700 maintenance/HOA fee, $3,000/monthly rent, and property taxes yields a cap rate of about 3.5% (actually less, you still have to deal with GET taxes) assuming you don't have to put a dime into the property and it is always rented.
Do tell - please, on what is missing from a simplistic example in my previous post on a $700K condo paid with cash.
Do tell - please, on what is missing from a simplistic example in my previous post on a $700K condo paid with cash.
Do you really want to learn?
You subtracted maintenance payments from the income. You SHOULD only subtract operating expenses. That is why I said you should educate yourself about them. A maintenance fee will also include money set aside for reserves. Maintenance fees can include other expenses that are not operating expenses.
Of course to try to utilize cap rates for condos for any reason is ridiculous anyway but good to know if you ever venture into commercial properties.
Location: not sure, but there's a hell of a lot of water around here!
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Quote:
Originally Posted by honobob
Maintenance fees can include other expenses that are not operating expenses.
Such as?
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