In this podcast episode, you will learn:

  • Cap rate means how you capitalize after all of the expenses (rate at which you get your money back)
  • Ratio is purchase price and divide it by NOI
  • Cap rate is important because commercial multifamily properties are valued by cap rates instead of their comps.
  • It is a function of (buyers perception of) risk. Buyers are willing to pay more if they see area is safe and building is new.
    • Age of propertiy,
    • Credit worthiness of current tenants
    • Diversity of Tenants
    • Length of Leases of current tenants
    • Underlying economy in the area
  • Net Operating Income (NOI) – Gross potential rent minus expenses (except mortgage)
  • Side note: It is always good to assume expenses (for B and C properties) are a ratio of 50%

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