Property Management Blog

Property Management Blog

About Cap Rate for Real Estate

Jobe Peterson - Sunday, April 5, 2020

Every person has their strengths and weaknesses. It's like the meme you're either a Maths person or an English person; no one is ever both.


Unfortunately, to be a well-rounded person, you need to know both… jokes aside, to be a solid real estate investor, you must know your numbers. Yes, the maths person out there may have a slight edge, but you're an English person right! So you can read and educate yourself. Seasoned real estate investors are not just throwing around cap rate, NOI, or cash-on-cash as buzzwords for no reason. In this topic today, we wanted to cover one of the most popular metric real estate investors use. Today we are going to cover everyone's favorite cap rate or capitalization rate.

What is a Good Orlando Cap Rate Or Capitalization Rate?

The best snippet we found wrapped it up short and sweet from bankrate.com. The capitalization rate is the estimated percentage rate of return that a property will produce on the owner's investment. The cap rate is significant because if the percentage rate of return is not adequate, it doesn't make sense to invest your money into that asset. You may be better off putting your money somewhere else. So what is an adequate cape rate? And the answer is... it depends.

How do you calculate your Orlando capitalization rate?

Cap rate = Net Operating Income / Current Market Value

For example, let say a property recently sold for $1,000,000 and had an NOI of $100,000, then the cap rate would be $100,000 divided by $1,000,000, which will provide a 10% cap rate. The capitalization rate is the ratio of Net Operating Income (NOI) to the property asset value. 

So what is a reasonable cap rate? Generally, anything from 8% to 12%. However, many other factors need to be considered in your evaluation of an investment property. You'll want to factor in the age of the property, location, population growth, economic and area job growth, and desired lease length. Like any financial ratio is not the end all tell all. 

If you're like 50% of the population that falls into that English person category, feel free to reach out to The Listing Real Estate Management, the best choice for property management in Orlando. We are happy to connect and direct you to a real estate mathematician. If you are interested in investing in the Orlando/Central Florida market or want to learn more about Orlando’s Capitalization Rates. Contact The Listing Real Estate Management, the trusted choice for property managers in Orlando.

 


Author

Jobe Peterson



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