This is valuable for any real estate investor who is looking to scale their business and grow their portfolio. Knowing the cap rate before making an initial investment can save an investor headaches and most importantly money in the long run. Cap rate is short for capitalization rate and calculates the rate of return on a rental property.
#Rental real estate noi calculation how to
In this article, we’ll take a look at three things to show how real estate investors can use cap rate to make smart real estate investment decisions and find the right properties that fit their investing strategy and help them grow their business.ģ) What cap rate percentage indicates a strong rate of return? What is Cap Rateīefore learning how to calculate cap rate, it’s important to understand what it is and why it can be valuable for real estate investors. One formula that is used for calculating the value of a property that has helped countless real estate investors is the cap rate formula. Whether it’s the monthly rental income, property value or the PITIA, each number paints a picture to give investors an idea of a rental property’s net operating income as well as the overall property asset value. Knowing the numbers is key for any investor looking to making smart real estate investment decisions. Growing a rental property portfolio, and real estate investing in general, requires a strong understanding of numbers and what factors make up a good deal.