Calculating and understanding a cap rate is very importantto speculative buyers. These are buyers who are not looking to rehab a property, but are looking for a return on their investment. In my experience many speculative buyers are professionals such as doctors, lawyers dentists and such. They are looking for a place to make their money grow.
Here is a simple formula for calculating cap rate:
Monthly rent
Less monthly expenses
Equals net monthly rent
Multiply X 12
Equals net yearly income
Divided by purchase amount
Equals cap rate (or return for the year)
Calculating and understanding a cap rate is very importantto speculative buyers. These are buyers who are not looking to rehab a property, but are looking for a return on their investment. In my experience many speculative buyers are professionals such as doctors, lawyers dentists and such. They are looking for a place to make their money grow.
Here is a simple formula for calculating cap rate:
Monthly rent
Less monthly expenses
Equals net monthly rent
Multiply X 12
Equals net yearly income
Divided by purchase amount
Equals cap rate (or return for the year)
Roy Voeks
Official RE Coach