Cap rate

7 Replies

hi

I bought a property in Atlanta area 5 years ago

Price 40k

Noi =7k

Cap rate = 17.5 percent

Question:  property is now paid off

Can I think and articulate , saying cap rate is now 100 percent??

no- cap rate is a method of determining return on your investment that is calculated before debt service on the property.  For this reason, the cap rate calculation on an investment is the same if you are mortgaging the property, or buying it for cash.

What RJ said.  Cap rate means capitalization rate or basically how long it takes to get your money back.

A 17% cap rate means you got 17% of your investment back per year.  Its more used to value a property at purchase than to determine your true return on capital (which can fluctuate greatly with leverage and cost of money).

Cap Rate is a method of comparing different types of commercial properties, and was never designed for SFH anyway.

thanks good info guys

What about ROI

Does ROI increase as years progress and investment cash returned ?

Can you view it in that manner?

@Daniel Peavey

For a property that is paid off, I think you are asking the wrong question. The question I would be asking is what is my opportunity cost of having this much equity tied up in this property? Can it be used to obtain a HELOC or cash out refi that then allows you to invest in other properties?

Originally posted by @Daniel Peavey :

hi

I bought a property in Atlanta area 5 years ago

Price 40k

Noi =7k

Cap rate = 17.5 percent

Question:  property is now paid off

Can I think and articulate , saying cap rate is now 100 percent??

Has your NOI remained $7000 over 5 years? If you sold the NOI today would someone still only pay $40,000?

Isn't cap rate for Commercial properties not residential?

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