MSR Video: What Is Cap Rate and How Does It Affect the Value of My Commercial Real Estate Investment?
Posted on: February 10, 2016
If you’re an investor interested in commercial real estate, then Capitalization Rate – or “Cap Rate” as it’s usually known – is one of the most integral concepts to understand. Cap Rate is used to estimate an investor’s potential return on a real estate investment based on the income that the property is expected to generate.
The Cap Rate Equation
Understanding the Cap Rate equation, and how it can work to provide you with the best return on investment, will help you make smart investment choices.
The Cap Rate equation has three components:
- Net Operating Income: Annual income the property generates. This involves rent from tenants, less any operating expenses such as maintenance and taxes.
- Value or Purchase Price: How much the property is worth in current market conditions.
NOI, Value, and Cap Rate control how much return on your investment you will get.
When purchasing an investment property, it is more beneficial to have a high Cap Rate.
Find out in our explanatory video below, where we explain the Cap Rate equation in detail and give examples of how the different elements can affect long-term ROI:
As you saw in the video, we focus on making the Cap Rate equation work for us and our investors. With years of experience behind us, we seek out those commercial investment properties where we can unlock value and which are best positioned to benefit from economic recovery.
MSR Holdings Inc. acquires exclusive commercial real estate investment opportunities in the US and Canada, currently focusing on Orlando, Florida. Contact us today to discuss becoming one of our select investors.
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