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Capitalization Rate (CAP Rate)

Capitalization Rate (CAP Rate)

In real estate appraisal, capitalization is the process of converting income, in the case of real estate net rental income, to a property value.  The capitalization rate or CAP Rate for short, is the ratio of yearly net income to the property value.  For example, if you purchase an investment property for $120,000 dollars and can generate $1,000 per month after all operating expenses (before debt service), then the CAP Rate would be $12,000 divided by $120,000 or 10 percent.  This means it will take approximately 10 years to recoup the property value in net rental income assuming the rent stays the same. 

In general, the lower the CAP Rate the better if you are selling and the higher the CAP Rate the better if you are buying.  However, make sure the neighborhood is good and the property is in decent condition.  CAP Rate does not help if the property is declining in value. 

Are Your Job Or Investments Safe?

Real Estate Investing is probably one the safest ways to make a fortune.  With little or no money upfront, a real estate investor can often purchase foreclosed properties and make a profit by renting or selling them.  Some of wealthiest people in the world created their fortune by investing in real estate.  The Rogue Real Estate Investor Collection gives you the advantage you will need to succeed in the real estate market.  It contains comprehensive information on:

  • VA/HUD/FHA and Bank Foreclosures

  • Selling Your Home or Other Property Without An Agent

  • Tax liens

  • REITs

  • Rental Property Management

Unlike other real estate investing products, The Rogue Real Estate Investing Collection provides email support by the author so you can ask questions and get the help you will need to make sound investing decisions.  Click here to find out more about Rogue Real Estate Investor.

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