Determine The Value of An Investment Property

The cap rate of a property is a popular measure of its value for two reasons:

  • The concept of cap rate is easy to grasp (i.e., the ratio between the net operating income of a property and its capital cost).
  • A property’s historical cap rate is easy to extrapolate to predict its future income.

Consider other factors that are just as indicative of a property’s worth.

Components also essential to examine before investing in a property.

  • Rent per square foot (is the rent high, low, or average for the area?)
  • Average annual population growth of the 1-5 mile radius surrounding the property
  • Average household income for the 1-5 mile radius surrounding the property
  • Tax incentives provided by the city or state in which the property is located
  • Quality of neighboring tenants (e.g., big box retailers versus small businesses)
  • Location in relation to major streets and intersections
  • Internal rate of return (IRR) based on your tax bracket and deprecation benefits
  • Ability of the tenant to gain a long-term, low-interest loan

The cap rate of a property is important for predicting its value, but it is essential for investors to see cap rate as what it is: one of many factors that help investors and property brokers determine the prospective value of a property. 201-541-0371 Howard Heckler Call to discuss opportunities Nationwide

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