Cap Rates vs. Property Values Explained
Today, I would like to take some time and outline the definition of a “Cap Rate” as well as how a basic CAP Rate calculation is completed.
The “Cap Rate”, or capitalization rate, is the rate of return on a real estate investment property based on the income that the property is expected to generate. The capitalization rate is used to estimate the investor’s potential return on his or her investment.
Cap Rates can vary from major urban centers to rural areas, however typical cap rates in Central Alberta are around the 7%-8% range depending on location.
Let’s have a look at an example;
Commercial Investment being offered with the following information;
Asking Price: $750,000.00