CAP Rate For Dummies

 

“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “    I AM YOUR LAND / INDUSTRIAL AND INVESTMENT SPECIALIST / LOOKING FOR OWNERS  Call me if you want to sell your property and  need an estimated value.  Direct : 602-759-1209, Prefer cell: 520-975-5207 or email me walterunger@ccim.net.    A  CLICK HERE TO VIEW ALL MY $ 60 MIL OF LISTINGS .  

CAP Rate For Dummies

   Demystification of an important number

Beginning property investors can easily become overwhelmed by the seeming complexity of an array of number crunching analyses experienced property investors run.  And usually, the more experienced, the more they run these numbers.  Usually, in their heads alone.   But novices will need initially at least, have to use pencil and paper…or plug in numbers to software programs (see the Tools section of this site for one excellent calculator).

One of the most important calculations any property investor needs to run is the capitalization rate (CAP rate).  It will yield a number to be used like the North Star is used for seafarers – a directional arrow to compare potential properties, and to gauge which properties may throw off better future returns, based on a specific price.  Thus, the CAP rate will help narrow down choices of different property investments to help you determine the best ones for you to pursue, as well as guide you, like the North Star, towards negotiating a price above which, the property makes no financial sense to continue pursuing.

How the CAP rate works

So let’s break down the CAP rate first.  Consider it as a simple tool to measure the annual rate of return on your property investment.  Different geographical areas will have different CAP rates.  In general, the more in demand an area, the greater the CAP rate.  And vice-versa. Thus, higher demand areas will usually yield CAP rates much greater than lower demand areas.  CAP rates, in general, tend to run between 4 to 10 percent for investment properties.

 

Doing the math

The calculation for the CAP rate is easy; simply follow this order:  ascertain the annual rent roll from a given investment property (making sure to double check and confirm any seller-given figures).  If there are vacant units in the building, you’ll need to ascribe a correct market rent for each unit.  Make sure you check out several Realtor’s estimates, Craigslist listings, and have actually visited like units in other buildings to help determine accurate rent roll pro forma numbers.  Then add up all the expenses associated with the building, on an annualized basis.  Don’t forget a vacancy amount (usually between 5 to 10 percent of total rent roll, as well as maintenance, taxes, insurance, electric, heating, and any other utilities the tenant will not be paying directly for.  Of course, unless you’re paying all cash for the property, you’ll need to add in your mortgage payment on an annualized basis as well.  Once you subtract the total expenses from the pro forma total income, you’ll have your (hopefully) positive cash flow number.  This, of course, is your net income.

Calculating the CAP rate

Now simply divide the net income figure by the amount the seller is asking for the property.  (As an example, if a property that throws off $10,000 in net income has an asking price of $100,000, then the CAP rate would be $10,000/$100,000, or 10%.)  To reiterate, the greater in demand the area, the greater the CAP rate should be.  In addition, you need to set minimum standards for yourself.  Some investors won’t buy anything with a CAP rate below 5%.  That’s up to you.  But be sure to use the CAP rate to help you back into the highest amount you would offer for a property.  The CAP rate can represent your rate of return on any given investment property.  After you run a few hundred of these calculations, you too will be able to compare properties in your head within minutes.

CCIM Instructor Alec Pacella, CCIM, explains cap rates in this brief video. Check it out:  CLICK HERE: Real Estate 101 – “Cap Rate”

https://www.youtube.com/watch?v=djwpXaPKRBo

FROM ME:                                                                      

Phoenix Commercial Real Estate and Investment Real Estate: Investors and Owner / Users need to really know the market today before making a move in owner user Commercial Properties, Investment Properties and land in Phoenix / Maricopa County, Pinal County / Arizona, Properties and Investment Properties. I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group.  I also sold  hundreds millions of dollars’ worth of  Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with  brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land  Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial en.wikipedia.org/wiki/CCIM    I AM YOUR LAND / INDUSTRIAL AND INVESTMENT SPECIALIST / LOOKING FOR OWNERS   CLICK HERE TO VIEW ALL MY $ 60 MIL OF LISTINGS     PLEASE CALL ME –  Direct : 602-759-1209 , cell: 520-975-5207 or email me walterunger@ccim.net

Commercial Real Estate News That Matters – GREATER PHOENIX APARTMENT OWNER’S NEWSLETTER 2nd QTR 2019 –  Kasten Long Commercial Group –

 

WEEKLY LAND SALES

“The major fortunes in America have been made in land.”   John D. Rockefeller

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WEEKLY INDUSTRIAL CLOSING UPDATE / THROUGH May 31, 2019 / Phoenix Arizona Metro, Maricopa County, Pinal County.

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WEEKLY APARTMENT CLOSING UPDATE THROUGH June 28, 2019, Phoenix Arizona Metro.

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WEEKLY APARTMENT CLOSING UPDATE THROUGH June 14, 2019, Phoenix Arizona Metro.

WEEKLY APARTMENT CLOSING UPDATE THROUGH June 7, 2019, Phoenix Arizona Metro.

WEEKLY APARTMENT CLOSING UPDATE THROUGH May 31, 2019, Phoenix Arizona Metro.

WEEKLY APARTMENT CLOSING UPDATE THROUGH May 24, 2019, Phoenix Arizona Metro.

WEEKLY APARTMENT CLOSING UPDATE THROUGH May 17, 2019, Phoenix Arizona Metro.

WEEKLY APARTMENT CLOSING UPDATE THROUGH May 10, 2019, Phoenix Arizona Metro.

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I AM YOUR LAND / INDUSTRIAL AND INVESTMENT SPECIALIST / LOOKING FOR OWNERS   CLICK HERE TO VIEW ALL MY $ 60 MIL OF LISTINGS

CLICK HERE FOR APARTMENTS FOR SALE:

Commercial Real Estate News That Matters – GREATER PHOENIX APARTMENT OWNER’S NEWSLETTER 2nd QTR 2019 –  Kasten Long Commercial Group –

 

 

 

Walter Unger CCIM

Senior Associate Broker

Kasten Long Commercial Group

5110 N 40th Street, Suite 110

Phoenix , AZ 85018

CELL: 520-975-5207

Direct: 602-759-1209

Office: 602-445-4112

Fax:       602-865-7461

walterunger@ccim.net

CLICK HERE TO VIEW ALL MY LISTINGS

www.Walter-Unger.com

www.KLCommercialGroup.com

What is a CCIM.

 

 

 “You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “  ARE YOU READY TO SELL OR PURCHASE YOUR INDUSTRIAL / OFFICE OR RETAIL BUILDING OR YOUR  LAND  in Phoenix, Maricopa County and Pinal County, Arizona, please call me.  Office: 602-445-4113,  Direct : 602-759-1209 , cell: 520-975-5207 or email me walterunger@ccim.net.  … CLICK HERE TO VIEW ALL MY LISTINGS.

 Let me know if you are interested in Apartments: CLICK HERE FOR APARTMENTS FOR SALE     

CLICK HERE:  Arizona Opportunity Zones As We Understand /maps. Interested!!! Please contact me.

History of Arizona from  900 BC – 2017 -Timeline.

WHY PHOENIX? AMAZING!!!  POPULATION – IN 1950 THERE WERE 331,700 PEOPLE LIVING IN PHOENIX – “NOW 5 MIL”. – “5TH. BIGGEST CITY IN USA”

PHOENIX TOPS US IN POPULATION GROWTH (MORE THAN LA, NYC) AND WHY THAT’S GOOD FOR THE ECONOMY, BUSINESS

 

8 Reasons You Should Invest in Land

History of Arizona from  900 BC – 2017 -Timeline.

 

WHY PHOENIX? AMAZING!!!  POPULATION IN 1950 – 350 K PEOPLE; “NOW 5 MIL”. – “5TH. BIGGEST CITY IN USA”

PHOENIX TOPS US IN POPULATION GROWTH (MORE THAN LA, NYC) AND WHY THAT’S GOOD FOR THE ECONOMY, BUSINESS

DOT – LOOP 202 / SOUTH MOUNTAIN FREEWAY / PHOENIX AZ – UNDER CONSTRUCTION

ARIZONA FACTS – YEAR 1848 TO 2013

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What is a CCIM.

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  • DEMOGRAPHIC FACTS ABOUT MARICOPA COUNTY:
  • The average age of the population is 34 years old.
  • The health cost index score in this area is 102.1. (100 = national average)
  • Here are some of the distributions of commute times for the area: <15 min (22.7%), 15-29 min (36.8%), 30-44 min (25.1%), 45-59 min (8.6%), >60 min (6.8%).

PHOENIX PROJECTED AS NUMBER ONE US HOUSING MARKET FOR 2017

LIST OF ECONOMIC DEVELOPMENT PROJECTS IN PINAL COUNTY, REVISED 2-14-17

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Walter Unger CCIM –  walterunger@ccim.net   – 1-520-975-5207  –  http://walter-unger.com

2016 Official Arizona Visitors Guide

Visit Arizona

Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950

Timeline of Phoenix, Arizona history

Phoenix, Arizona

Facts of Arizona – year 1848 to 2013

Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.

Walter Unger CCIM

Senior Associate Broker

Kasten Long Commercial Group

5110 N 40th Street, Suite 110

Phoenix , AZ 85018

Direct: 602-759-1209

CELL: 520-975-5207

Office: 602-445-4112

Fax:       602-865-7461

walterunger@ccim.net

CLICK HERE TO VIEW ALL MY LISTINGS

www.Walter-Unger.com

www.KLCommercialGroup.com

What is a CCIM.

 

“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “   

Please check maps if your Land or Commercial Property is in the Opportunity Zone, IF SO CONTACT ME / THIS IS FOR SELLER’S AND BUYER’S.

ARE YOU READY TO SELL OR PURCHASE YOUR INDUSTRIAL / OFFICE OR RETAIL BUILDING OR YOUR  LAND  in Phoenix, Maricopa County and Pinal County, Arizona, please call me.

Also Call me if you need an estimated value of your Property.

Call me if you want to see a map with what is in the Construction Pipeline for Apartments.

Direct : 602-759-1209,  Prefer cell: 520-975-5207,   or email me walterunger@ccim.net.       CLICK HERE TO VIEW ALL MY LISTINGS.    

 

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 Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages.  The interactive map  shows the location of each community (10+ units) and each location is color coded by the size (number of total units). 

 Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years.  If you have any questions about Commercial / Investment Properties in Phoenix or Commercial /  Investment Properties in Arizona,  I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us. 

Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207

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