by Ray Alcorn
How do you know what a commercial income property is worth?
How do you know that you can get your desired return on your investment?
Is there a way to calculate the maximum you can pay for an investment and still achieve your investment goals?
This article will answer these questions and more about valuing income property.
Many real estate investors determine the value of an income property by using the capitalization rate, aka cap rate. It is probably the one most misused concept in real estate investing.
While brokers, sellers, and lenders are fond of quoting deals based on the cap rate, the way it is typically used, they really shortcut the true use of a valuable tool. A broker prices a property by taking the Net Operating Income (NOI), dividing it by the sales price, and voila!--there's the cap rate.
Read more...Cap Rate Formula | What's Your Property Worth?
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