Cap Rates in Commercial Real Estate: Formula & Explanation
When considering the purchase of a commercial real estate asset, all investors will use a property’s existing cash flows to create a “proforma” financial projection of future cash flows. The proforma, which includes allocations for income and expenses, serves as the basis for calculating the property’s potential return on investment. A diligent real estate investor […]
Real Estate Returns: Cap Rate vs. Return on Cost
Every real estate investor, whether they focus on commercial or residential property, has their own set of requirements that they use to determine whether or not an investment property is worth purchasing. In commercial real estate investing, there are two widely used methods of measuring returns on a real estate investment: capitalization rate (“cap” rate) […]
Understanding the Capitalization Rate
Commercial real estate properties, even those within the same asset class, come in all shapes and sizes. They have different locations, unit mixes, rental prices, finishes, conditions, and lease expirations all of which can make it difficult for real estate investors to create a true “apples to apples” comparison when evaluating investment options. To solve […]
