10
Jan
What is NetGain’s prediction for interest rates in 2008?
Predicting the direction of interest rates makes for good media sound bites, but is of little value to commercial real estate investors. Commercial real estate investors don’t need to know where interest rates are going and should not attempt to play the interest rate guessing game. There are two possible questions concerning the interest rate that commercial real estate investors need to ask. (1) Does the current interest rate provide economic value for my purchase? (2) Does the current rate provide better economic value for my current holding(s)?
If the NOI is 2,750
purchase price is 350,000
What is the CAP Value?
350,000 Divided by 27,000
OR
27,000 Divided by 350,000
?
ILene
July 11th, 2008 at 3:16 pmThe formula for computing a capitalization rate is the NOI ($27,000) divided by the purchase price ($350,000). In the example above, the capitalization rate is 7.7%.
The capitalization rate is the yield generated by an income property without consideration of a mortgage. Without the complexities of different mortgages, the capitalization rate places income properties more on a parity for value comparisons to other properties as well as other types of investments.
July 11th, 2008 at 11:57 pm