Short sweet and to the point - Thank you, have an upvote. Quick question i cant seem to find the answer to: why would lower cap rates command a higher price - like, why would an investor pay more for a lower cap rate?
Cap rate is a measure of risk. A business with a higher cap rate may be more likely to go out of business. Cap rate doesn't explicitly have risk built into the formula, but investors pay less for riskier investments, so those investments have higher cap rates.
Is this the price you paid for the building, or the new appraised value. Also would you add back in....the downpayment. For instance: I purchased a building at 1.65 Mil. I put down 250K approx, cant remember. Been in the property for 3 years and got a formal evaluation of 2.5Mil. my NOI is 60K.
shahn78 not necessarily. you can find junk properties out in the boondocks w/high cap rates. but you wont get appreciation and your tenants will probably be losers.
Actually, the price you pay for an investment is what determines the profitability. the less money you pay for something, keeping expected cash flows constant, the higher your profitability would be (your cap rate, or capitalization rate). If profitability is higher, it will be because the investment is riskier, and you would not want to pay more(which will decrease your cap rate). In a nutshell, cap rate is a measure of profitability. yearly proceeds/ total value of investment..
Cap rate is a measure of risk. A business with a higher cap rate may be more likely to go out of business. Cap rate doesn't explicitly have risk built into the formula, but investors pay less for riskier investments, so those investments have higher cap rates.
Hello guys! Saw this article online..." Investors want a high cap rate cause that means the seller is selling the property cheap, sellers what a low cap rate because that means they will be selling at a higher cost... "Anyone wish to chime in? I would like to learn more
Cap rates do not measure returns. The formula is r=i/v So $1 of NOI in a 10 cap market is worth $10. 10%=$1/$10 10%=$2/$20 Now double the NOI. See the VALUE changes, not the cap rate. It is not a return metric.
I can understand the logic behind the Cap Rate Rule being the higher the percentage the higher the risk. But when analyzing properties, this is an over generalization, I’m seeing absolutely minimal difference in occupancy rates for multi-family units. Why would I want a property paying me 5% on my money vs. paying me 7-10% on my money? (All other things considered constant)...
And if you're goal is to buy and hold long term. The value of the home isn't really as important. What's more important is your NOI vs your intial investment. For example you put $10K in and you make $5K NOI a year then you have a 50% return on investment. I like using that more than a cap rate. Risk depends on many other factors. I don't think cap rate has much to do with risk.
If NOI is 100,000 which more than 60,000 as in the video CAP rate becomes 10% because you kept more money how is that a bad thing? 100,000/1,000,000=.1 (10%) What am I missing here?
@@devinbalasi7296 is everyone in this comment section a bot? There's no chance you're a human being. >I don't understand this, can somebody explain how this is beneficial to investors? >Yes, the point was it's beneficial to investors. *surprised Pikachu*
@@greglocker2124 Cap rates come from analyzed closed sales by professional third party companies. If all sales are around a 10% cap rate then you know that investors have apid about $10 for a possible dollar of NOI. V=i/r $10=$1/10% You do not want to pay $10 when everyone else is paying $8.33 That is a 12% cap rate. $8.33=$1/12%. Internet scammers want you to believe that a cap rate is a "return" because they own low demand, high cap rate properties that they want to entice you to buy. So they buy and $8.33 and sell to you at $10 by scamming you. Cap rates come from an income approach to value. All they do is tell you to the penny what NOI sold for. They don't measure risk or return.
You explained this completely backwards. If you have the Value which you had in each of your examples you have no need for direct capitalization! Direct capitalization is an income approach to value. There is never a need for an investor to calculate a cap rate.
@@Yankeeprepperasshat Cap rates come from analyzed closed sales by professional third party companies. If all sales are around a 10% cap rate then you know that investors have apid about $10 for a possible dollar of NOI. V=i/r $10=$1/10% You do not want to pay $10 when everyone else is paying $8.33 That is a 12% cap rate. $8.33=$1/12%. Internet scammers want you to believe that a cap rate is a "return" because they own low demand, high cap rate properties that they want to entice you to buy. So they buy and $8.33 and sell to you at $10 by scamming you. Cap rates come from an income approach to value. All they do is tell you to the penny what NOI sold for. They don't measure risk or return.
It is time to make your own video and put women, dogs, cats, no gender aliens as cartoon actors.This is a video on investment, not on gender studies. We all know that women and men can invest.
Short sweet and to the point - Thank you, have an upvote.
Quick question i cant seem to find the answer to: why would lower cap rates command a higher price - like, why would an investor pay more for a lower cap rate?
Cap rate is a measure of risk. A business with a higher cap rate may be more likely to go out of business. Cap rate doesn't explicitly have risk built into the formula, but investors pay less for riskier investments, so those investments have higher cap rates.
I know I am pretty off topic but do anyone know of a good site to watch newly released tv shows online ?
Is this the price you paid for the building, or the new appraised value. Also would you add back in....the downpayment. For instance: I purchased a building at 1.65 Mil. I put down 250K approx, cant remember. Been in the property for 3 years and got a formal evaluation of 2.5Mil. my NOI is 60K.
you would do the price you paid for it
Thank you!!! That was very plain and simple. 🙏🏾💯
NOI is the income remaining before paying tax right? Because NOI is also called EBITDA.. So it does not include paying tax right?
EBITDA is gross not net income
Shouldnt a business that has a higher cap rate i.e more profitable command a higher price?.... and vice versa.
The last 10 secs is very confusing.
shahn78 not necessarily. you can find junk properties out in the boondocks w/high cap rates. but you wont get appreciation and your tenants will probably be losers.
Actually, the price you pay for an investment is what determines the profitability. the less money you pay for something, keeping expected cash flows constant, the higher your profitability would be (your cap rate, or capitalization rate). If profitability is higher, it will be because the investment is riskier, and you would not want to pay more(which will decrease your cap rate). In a nutshell, cap rate is a measure of profitability. yearly proceeds/ total value of investment..
Cap rate is a measure of risk. A business with a higher cap rate may be more likely to go out of business. Cap rate doesn't explicitly have risk built into the formula, but investors pay less for riskier investments, so those investments have higher cap rates.
Hello guys! Saw this article online..." Investors want a high cap rate cause that means the seller is selling the property cheap, sellers what a low cap rate because that means they will be selling at a higher cost... "Anyone wish to chime in? I would like to learn more
Higher the cap rate lower the price?? Wtf why would I want a low cap rate?
Isnt this the same as ROI
Cap rates do not measure returns. The formula is r=i/v
So $1 of NOI in a 10 cap market is worth $10.
10%=$1/$10
10%=$2/$20
Now double the NOI.
See the VALUE changes, not the cap rate. It is not a return metric.
I can understand the logic behind the Cap Rate Rule being the higher the percentage the higher the risk. But when analyzing properties, this is an over generalization, I’m seeing absolutely minimal difference in occupancy rates for multi-family units. Why would I want a property paying me 5% on my money vs. paying me 7-10% on my money? (All other things considered constant)...
And if you're goal is to buy and hold long term. The value of the home isn't really as important. What's more important is your NOI vs your intial investment. For example you put $10K in and you make $5K NOI a year then you have a 50% return on investment. I like using that more than a cap rate. Risk depends on many other factors. I don't think cap rate has much to do with risk.
If NOI is 100,000 which more than 60,000 as in the video CAP rate becomes 10% because you kept more money how is that a bad thing? 100,000/1,000,000=.1 (10%)
What am I missing here?
i dont get it either
So good!!! Well explained.
I understood the Arithmetic but how does the Cap rate benefit the investor? How is this percentage played in his/hers investing?
i think its a formula for investors to use to calculate if theyre getting a good deal on an investment or what offer to put in.
@@devinbalasi7296 is everyone in this comment section a bot? There's no chance you're a human being.
>I don't understand this, can somebody explain how this is beneficial to investors?
>Yes, the point was it's beneficial to investors.
*surprised Pikachu*
@@greglocker2124 Cap rates come from analyzed closed sales by professional third party companies. If all sales are around a 10% cap rate then you know that investors have apid about $10 for a possible dollar of NOI. V=i/r $10=$1/10%
You do not want to pay $10 when everyone else is paying $8.33 That is a 12% cap rate. $8.33=$1/12%.
Internet scammers want you to believe that a cap rate is a "return" because they own low demand, high cap rate properties that they want to entice you to buy. So they buy and $8.33 and sell to you at $10 by scamming you.
Cap rates come from an income approach to value. All they do is tell you to the penny what NOI sold for. They don't measure risk or return.
Clear as a bell. thanks for this video
You explained this completely backwards. If you have the Value which you had in each of your examples you have no need for direct capitalization! Direct capitalization is an income approach to value. There is never a need for an investor to calculate a cap rate.
Please explain yourself. I don’t get it.
@@Yankeeprepperasshat Cap rates come from analyzed closed sales by professional third party companies. If all sales are around a 10% cap rate then you know that investors have apid about $10 for a possible dollar of NOI. V=i/r $10=$1/10%
You do not want to pay $10 when everyone else is paying $8.33 That is a 12% cap rate. $8.33=$1/12%.
Internet scammers want you to believe that a cap rate is a "return" because they own low demand, high cap rate properties that they want to entice you to buy. So they buy and $8.33 and sell to you at $10 by scamming you.
Cap rates come from an income approach to value. All they do is tell you to the penny what NOI sold for. They don't measure risk or return.
That’s totally false.
@@Yankeeprepperasshat I have a property that has $10 in NOI. A similar property has $20 in NOI. What is their VALUE?
@@AdRock I have a property that has $10 in NOI. A similar property has $20 in NOI. What is their VALUE?
The video is great, but really no women investors depicted? What era are we in??
It is time to make your own video and put women, dogs, cats, no gender aliens as cartoon actors.This is a video on investment, not on gender studies. We all know that women and men can invest.
Get away Karen
Shut up
Ur dumb
You said it was “great”! Why do women need to be included?
Tai Lopez know this right?
I see where you come from, lol :))
@@eugeneshilow haha