Capitalization Rate?

[johnnyonthespot]

I am a bit confused by cap rates... can anyone please give a a good definition or examples of good and bad cap rates? Thanks for your help!

[WilsonTaylor]

Johnny,

My interpretation of Cap Rates is the percentage of your investment that would be returned from 1 year of ownership of the property if you paid cash for it (Return on Investment where you do not use OPM). It is calculated by taking total income minus expenses other than interest expense and dividing it by the total cost of the property. For example a 10 percent Cap Rate indicates that you should get 10 percent of the amount that you invested back in 1 year of ownership.

HTH,
Wilson

[johnnyonthespot]

Wilson,

Thanks for the input! That makes alot of sense...

Johnny