Question about Cap Rate
Is it considered standard to include all closing costs, capital outlays (for repairs, improvements, etc), and loan origination fees in addition to the sales price when calculating cap rates?
I know that generally, when people buy multifamily units, they're looking to improve the property in order to increase rental rates/ increase the value of the property (presumably you'd increase the rents so as to maintain the same cap rate whenever you do substantial improvements).
It seems to me that since the buyer generally uses the previous year's NOI when calculating a fair sales price that any potential repairs/ improvements SHOULDN'T be included when calculating the cap rate.
However, since it's still cash that needs to be spent, I can see why people would include it.
Thanks,
Patrick