Popcorn is great with a movie or possibly for stringing around an old-fashioned Christmas tree, but it’s a little less universally loved when it’s applied to the ceiling as a texture. “Popcorn
Do You REALLY Know What A CAP Rate Is
Dated: November 3 2017
"10% CAP Rate!" advertises the listing... but do agents REALLY know how to accurately calculate a CAP rate? The simple definition is, "A 10% cap rate will give you 10% return on the value of the property over a single year after all costs EXCEPT a mortgage."
Here's a perfect example: A single family house costs $100,000 and rents for $1,500 per month. Taxes are $150 per month ($1800 annually) and insurance costs $125 per month ($1500 annually). The owner pays utilities of $100 per month ($1200 annually) AND give the tenant a $25 monthly discount for taking care of the lawn ($300 annually). The owner should also expect the property to be vacant for about 1 month per year (vacancy rate) so we'll need to deduct a full $1500 off of the total income.
$1500 * 12 months = $18,000 total income
-$1500 (vacancy) = $16,500
-$1800 Taxes = $14,700
-$1500 Insurance = $13,200
-$1200 Utilities = $12,000
-$300 Lawn care = $11,700
$11,700 is the Net Operating Income (NOI)
$11,700 / $100,000 (purchase price) = 11.7% CAP Rate
Many agents stop short of adding all of the expenses or fail to take into account vacancy rate. Others forget expenses or take a mortgage into account.
Now, if you need a mortgage, that's fine, but don't say the property has a low CAP rate if you're including the mortgage, just expect a lower rate of return for using someone else's money.
Hope this was helpful!