Airline pilot · Dubai, UAE · Member since 2015 · 22 posts · 3 votes
Hi BP users,
After calculating my NOI and wanting to know the cap rate, given the formula CR=NOI/V, where V is the value of the investment, do you also consider the closing costs in the total value of the property? Or you disount it when you present your offer?
Who said that? I haven't purchased anything, I need to evaluate first! :-)
Luca
You need a purchase price to calculate a cap rate. Better to determine What cap rate the market is buying your NOI. Then your NOI divided by market cap rate gets you market value. Try to buy under.
Airline pilot · Dubai, UAE · Member since 2015 · 22 posts · 3 votes
10y
@Account Closed
Bob, what I mean is that given a purchase price and a NOI, that I know, when I calculate a cap rate to compare it with the average market, do I consider the eventual closing costs or not?
Example: price 100.000, closing 10.000, NOI 10.000. The cap rate is 10% or 9,1%?
Bob, what I mean is that given a purchase price and a NOI, that I know, when I calculate a cap rate to compare it with the average market, do I consider the eventual closing costs or not?
Example: price 100.000, closing 10.000, NOI 10.000. The cap rate is 10% or 9,1%?
You cannot calculate a cap rate until you have a closed sale. Period! It would be like using asking prices for sales comps! Get cap rate comps from CLOSED sales. Those cap rate comps will not use financing costs unless they affect the market value of The property such as below market owner financing.
Bob, maybe I was not clear enough in my request and I guess that saying "purchase" I set you off track...that's being not a native English speaker...:-))
I think that having a NOI and a market cap rate is a very good way to estimate the price of a property you'd like to buy. Let's say I know that in that area the cap rate is around 10%. Now I decide to run my numbers on three differet properties; I get all my data, the vacancy rate, the bills, maintenance costs, property management costs, real estate taxes and so on...
In one case, I see that the advertised price is 120.000 and the NOI is 10.000. So my cap rate is 8,33%. What should be the correct price? 100.000 given the 10% cap rate of that specific area.
This essentially the same thing you said except that I don't agree that you need to have a closed deal to do that. On the contrary this is essential to know BEFORE you close the deal.
So, back to my question, do you consider the closing costs when you run the numbers? Wade gave me an answer, and I'm happy with that because I think it's reasonable, but what I would do is to negotiate a price to include the closing costs in the deal, since it's still my money!