Figuring out Cap Rate

2 Replies

I have a question. When dividing cash flow from property cost to find the cap rate on a property, do we factor in only out of pocket spent or total cost including the loan. Practicing for now on the in laws new property, they purchased a house with a friend loan, but will spend about 10k O.O.P on rehabs. Thanks in advance!

@Levi Lewis

Cap Rate = NOI / Total Cost or Value.

So, you take the Net Operating Income (NOI) which is defined as Total Revenue - Operating Expenses. Operating expenses do NOT include major capital expenditures, they also do NOT include loan repayments. Total Cost or Value includes your down payment, out of pockets, loan proceeds... everything.

Cheers... Immanuel

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