Am I doing my math right? I'm coming up with a 26.3% Net Cap Rate

[Dan Guerin]

We just recently put a 6 unit under contract and have lowered the price to 105K, the rent a month is $3025, the expenses are $726.42 (Gas and Electric), Taxes last year was 2700 (year total),  the property is fully occupied, and each unit would need to be turned over after occupants move out (adding to your cap rate due to rent being lower that the average in the area). I have attached the link to our contract:

Cincinnati Property

[Immanuel Sibero]

@Dan Guerin

Hi Dan,

Cap rate = Net Operating Income / Acquisition Cost.

I recommend looking into the definition of NOI (i.e. easily obtainable by doing a search on NOI right here on Biggerpockets). @Michele B. brought up a few items to include as part of operating expenses which are components of NOI. There are some items proposed by @Michele B. that should NOT be included in NOI for purposes of calculating Cap Rate. For example, mortgage payments and capital expenditures items such as replacements of roof, furnace, major electrical components, etc. are normally not included in NOI.

By the way, why does Cap Rate matter on a property that you've already put under contract? Cap rate is useful in analyzing and comparing among available properties to determine which one is most investment worthy (i.e. before you buy). It is also useful in assuming an exit value when you underwrite properties for IRR.

Once you acquire the property, cap rate is irrelevant. I suppose you can calculate your daily, monthly, annual, net, and gross cap rate but what good do they do? Once the property is yours focus on "operating" the property. Focus on NOI (i.e. find ways to maximize revenues and minimize expenses). Your cap rate will take care of itself, it is incidental to your NOI.

Cheers... Immanuel