I've been looking for investment properties in potential up and comers. The only criteria is they must have a 10% cap rate on the books now. Easier said than done.
The cap rate is the ratio of the net income to the property value. Just for a clear example to get a 10% cap rate on a 1 million property, you would need to bring in $100,000 on net income. There are a ton of variables that are involved in net income but it is basically rent minus expenses. Most class A properties have around 4% cap rates, things get riskier the higher the cap rate, but the potential reward is obviously higher.
Pretty much. If there is economic potential in the city, and if the books check out there is money to be made in ugly places. There is more work involved, no doubt about that. Wouldn't be a wise investment if you just want to park your money.
I've been looking for investment properties in potential up and comers. The only criteria is they must have a 10% cap rate on the books now. Easier said than done.
Could you explain like I’m five what Cap Rate is and what 10% implies?
I’ve read up on it before but don’t really understand the practical implications
The cap rate is the ratio of the net income to the property value. Just for a clear example to get a 10% cap rate on a 1 million property, you would need to bring in $100,000 on net income. There are a ton of variables that are involved in net income but it is basically rent minus expenses. Most class A properties have around 4% cap rates, things get riskier the higher the cap rate, but the potential reward is obviously higher.
So what does 10% imply in an inner city?
Like, “hey, this building is in the ghetto but it still makes great money” basically?
I’d be worried there were accounting tricks, but I guess that’s what you mean by risky
Pretty much. If there is economic potential in the city, and if the books check out there is money to be made in ugly places. There is more work involved, no doubt about that. Wouldn't be a wise investment if you just want to park your money.