Real Estate Investing Cap Rate
Bonita Beach Homes For Sale
Have you ever thought about investing in real estate? Further what kind of real estate investing were you interested in? There are many formulas savvy real estate investors will use in purchasing real estate. So what formulas should we use?
One formula is the capitalization rate also know as cap rate. It is an easy formula to figure out which is NOI / Price + Rehab Cost if any.
NOI is your Net Operating Income which is what you net after all expenses excluding any debt service if any. Now Price. If you were to purchase a property for $300,000 but have to put $50,000 into it to get it to rentable standard then you MUST include your rehab cost.
So for example your NOI = $35,000 and your property cost is $350,000. 35,000 / 350,000 = 10% This would be a 10% cap rate which is many eyes is a good investment (depending on the product, location, etc).
If you were looking into say for example Bonita Beach Homes For Sale and came across a back water single family home for $600,000 rent ready and the net income was $42,000 you can quickly figure a 7% cap rate. Now this is a lower cap rate. However that Bonita Beach Home For Sale that you acquired was an A+ vacation property, it maybe ideal for the investor who doesn’t want certain headaches and also a property to use when not leased. A win win scenario.
Institutional investors may seek A+ properties at 5% and other investors in lower income areas may seek no less than 18%. It ALL depends on the investor, their risk tolerance, geography and more.
Having an office on Bonita Beach has allowed us to analyze many Bonita Beach Homes For Sale with our vacation rental department thus finding properties in the 7% cap rate range. Some higher closer to 10% in the Fort Myers Beach area as well.
If you are ever looking for an investment property in SW Florida, feel free to reach out to me directly at 239-221-8777 – Steve Daria – Real Estate Broker and Investor.
Also, keep a look out for future posts on more formulas to use in your real estate investing endeavors! Cheers!