Southwest Florida Real Estate Investing
Cap Rate Methodology
For those considering Southwest Florida real estate investing, there are varying methodologies of calculation investors typically use to determine how to get the most bang per buck. One formula is the capitalization rate (also know as cap rate). This is a fairly easy formula to figure out which involves NOI / Price + Rehab Cost (if any).
NOI , or the Net Operating Income, is the net derived after all expenses, excluding any debt service if any. Now Price – let’s say you were to purchase a property for $300,000, but then have to put $50,000 into it, in order to get it to a 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 as many eyes would see is a good investment (depending on the product, location, etc).
If your Southwest Florida real estate investing strategy involved, say, Bonita Beach Homes For Sale and you 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 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 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 guidance on your Southwest Florida real estate investing strategy, feel free to reach out to Maxim Realtors Broker & Investor Steve Daria by phoning 239-221-8777 or simply submitting the contact form below. Also, be sure to keep a look out for future posts on more formulas to use in your real estate investing endeavors!