Updated about 3 years ago on . Most recent reply
Understanding Cap Rates and the impact they have on prices!
One of my favorite parts of investment real estate is also one of the worst!
Investment real estate is valued through cap rates
You take the cap rate and then divide it by the true earnings of the property (NOI) to get the value
NOI = $100k / 0.04% = $2,500,000
Every dollar you add to the NOI generates $25 dollars in value
Every dollar you subtract from the NOI reduces value by $25 dollars
As an entrepreneur that's exciting because NOI is mostly in your control!
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And with interest rates climbing, cap rates are starting to follow.