capitalization rate!!!!!!!!!!!!

[Tin Lam]

How do you determined a capitalization rate? I was curious what is the current capitalization rate for a home right now? Since I want to determine a house value and I know it's based on capitalization rate, then how do you know what the cap rate is in order to determine home value?

[Steve Steadele]

Do yourself a favor and don't get to tied up in the cap rate. Buyers are cap rate crazy. It's only one of the many value indicators and if you do it wrong it means nothing. I've seen a lot of investors walk away from a great opportunity because they didn't think the cap rate was high enough. I've seen others buy a property at a high cap rate and the property was nothing but a money pit. So be careful - there are a lot of ways to make money. Assessing value involves much more than a "standard" cap rate. It can lead you in the right direction if it's done correctly, but I wouldn't make my decision based on the cap rate. Again, it's just one indicator.