In commercial multifamily real estate, there’s a language that is spoken when you are connecting with brokers, property managers and other investors in the profession. To avoid sounding like a novice, an investor must be fluent with the real estate terminology to be taken seriously. Let’s take a minute to breakdown one of those terms.
Capitalization rate is widely known as Cap Rate, which can be derived as the rate of return based on the income that you expect your property to generate. The cap rate is calculated by dividing the net operating income (NOI) of your property by the current market value of your property.
- For instance, you own a 200-unit apartment community with a NOI of $600,000 that was purchased for $10,000,000 has a cap rate of 6%.
- $600,000 / $10,000,000 = 6%
By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.
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