Read my BLOG

19
Apr

How to calculate Capitalization Rate for Real Estate

Real estate investors need to have a method to determine the value of a property they’re considering buying.  The most  accurate way to do this is by determining the properties’ actual operating income and comparing it to the purchase price of the  property.  The capitalization rate is determined and then applied to the property in question to determine current value based  on income.

Here’s How:

1.  Determine the Purchase Price of your Real Estate Investment, such as a Vacation Rental property.

  • Vacation Rental Price = $850,000

2.  Determine the NET operating income, realized by the property owner.

  • NET Income (after expenses) = $42,500

3.  Divide the Net Operating Income by the Properties’ Purchase Price to get Capitalization Rate.

  • $42,500 / $850,000 = .05 or 5% (Cap Rate)

Keith Powers REALTOR®

DRE #01940642 Cell: (714) 402-1357

Powers Realty Group - Alta Realty Group

3416 Via Lido, Suite E
Newport Beach, CA 92663

Contact Me Today

for help Buying or Selling a Vacation Rental