CAP rates are rising!

[steve...@yahoo.com]

Capitalization rates or CAP rates as they are known in the industry are
creeping up & that has an impact on investment real estate values. As
the CAP rates increase the market value of investment real estate
decreases. The CAP rate is established by dividing the Net Operating
Income or NOI by the asking price of the investment property. As an
example if the NOI of a property is $100,000 & the asking price of the
property is $1,666,666 the CAP rate is 6%. If the CAP rate increases to
7% the value of this investment becomes $1,428,571. So you can see that
everything being equal if the CAP rates rise by 1% in this example the
owner of the property has lost $238,095!