Cap rate is an incredible little calculation that is used by anybody who’s anybody in real estate. In Phoenix Arizona we use this a lot. We focus on property management in Phoenix, but we still have to use this calculation in order to help our clients budget their property appropriately.
In this video we go over the concept of cap rate.
Essentially cap rate is a form of valuing your property. It is essentially based off risk and reward. So if the cap rate is higher, like 10%, then that means buying it should have a better return, but the risk will be higher too.
The main thing to note on cap rate is getting the numbers correct that make the calculation. (NOI/Purchase price) Getting these numbers correctly requires doing some homework, knowledge and even maturity.
I’ll stress maturity because that’s the thing no one talks about. People get greedy in real estate (thanks captain obvious) and that can actually lose you money. Capping your greed is a big deal at this stage because you will be more likely to put in far more positive numbers than you will actually experience. DON’T DO THAT!
Watch part two to actually learn the calculation.