How to Use Cap Rate to Figure Rental Property Fair Market Value

cap rate

cap rateSay you are a real estate agent that just received a call from an apartment complex owner that is considering to have you sell his property but would like you to suggest the apartment’s fair market value and listing price. What do you do next?

In this article we will show you how you can use a popular real estate investing return called the cap rate to make that determination quickly and easily.

For those of you who are not familiar with the term, cap rate (or capitalization rate) expresses the relationship between a rental property’s value and its net operating income (NOI) for the current or coming year.

Okay, let’s get started.

To begin with, you must establish what the average capitalization rate is in your local area based upon recent sales activity for similar properties. Since you will be using this “average” to compute a fair market value for your seller’s property, it is very important that you have a clear understanding of what this means.

You want to be certain that the average rate reflects the same-type of income properties. In this case,you want it based upon recent sales of similar-type apartment buildings and not upon the recent sales of office or industrial complexes. Secondly, you must be certain when reviewing the sold listings that any cap rates indicated in that sales data reflect reliable income and expense data and not simply a listing agent’s hyperbole. The idea is accuracy. You certainly don’t want to suggest a fair market value based upon faulty data that might result in an over-priced listing you waste your time on, or worse, an under-priced listing that could alienate your apartment seller.

Okay, let’s take it step-by-step. Hopefully it will provide you the information you need to follow through with the seller’s request and enable you to recommend a reasonable and realistic fair market price for his or her apartment complex.

Settle Average Rate

The first thing you want to do is to settle on the average cap rate rental properties similar to your seller’s apartment complex have recently sold in your market area. There are a number of ways to do this including gathering the information from a local appraiser, county tax assessor, real estate colleagues, MLS and so on.

For our purposes, let’s assume that you were able to obtain this from a local appraiser and are comfortable using a cap of 8.0% as the average rate.

Confirm Property Data

Next, you must confirm and validate the income and operating expenses your seller is telling you that his apartment building annually produces. This means you must examine each carefully so you can calculate an accurate net operating income. You do this by deducting the property’s annual operating expenses from annual rental income.

We’ll say that your research and effort produces a net operating income of $41,500.

Make the Calculation

Okay, now you’re ready to compute a fair market value for your seller’s apartment complex. Simply divide the net operating income you calculated by the average capitalization rate you settled on and you’re done.

Net Operating Income / Average Cap Rate = Fair Market Value
$41,500 / 8.0% = $518,750

So You Know

ProAPOD provides a real estate agent software solution that automatically computes capitalization rate for a range of reports that real estate agents can create and use for listing presentations.

 

How To Spot Great Real Estate Investment Opportunities

How To Spot Great Real Estate Investment Opportunities

There are abundant numbers of that are available in the market right now. However, it takes a wise and discerning investor to figure out which deals yield the best potential for growth. Here are some useful tips on how to determine the right investing option:

One of the first things that an investor must think about when looking at real estate investment opportunities is the purpose. The investor must be able to know this in order to figure out the plan and expectations that he or she has with every project. Examples of questions to ask are: “Am I looking for a steady source of income or a big profit on a short-term basis?” and “Do I want a hands-on approach to my business?”
The next step in determining property investment opportunities is to figure out the best investing type for a person. One can choose from basic real estate trading techniques such as rehabbing and . Meanwhile, someone who wants a more remote approach can choose from real estate investment groups and REITs.
The number of amazing real estate investment opportunities is no use for a person who does not have the knowledge and the attitude to succeed in the field. Having a real estate mentor enables aspiring investors to spot the best opportunities and know how to deal with them. is a real estate related website that provides a venue for both investors and mentors to learn and share knowledge regarding this type of topic.
Planning is essential in any type of business, particularly in . An investor needs to have a basis and an end in mind when they look at real estate projects. Making a business definitely helps in classifying good deals from the not-so-good ones.

The following tips are just some of the things that investors can do when on the lookout for potential real estate investment opportunities. For more information on all things real estate, investors can do some research on the Internet.  They can also consult their and coaches if they have questions that cannot be answered by online resources.

REI Wired is the ultimate real estate investor network on the planet. The sole purpose of this site is to arm you with the cutting-edge real estate investing tactics being used by the hottest investors in the industry…so you can dominate your competition and close more deals… FAST.

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1031 Exchanges Explained

1031 Exchanges Explained

Tax is certain. When state and federal taxes are combined, the capital gains tax (CGT) eats up to 30% of a person’s profit. The huge tax deduction pushes people to find alternative ways to prevent this deduction.

As a result, people seek refuge from the under . Also known as the tax deferred exchange, this is a clever strategy to sell properties and investments, which postpone CGT.

The process of selling a property and acquiring another in the same period is considered a standard sale. The 1031 exchange, on the other hand, treats the process as an and not a typical buy and sell. A taxpayer is allowed to sell his property in exchange of a like-kind. This allows the taxpayer to qualify for a suspended CGT. In summary,

The 1031 exchange is noted as the most reliable and effective wealth-building tool available for US taxpayers. Most financial experts and real estate professionals attribute their success to the usage of 1031 exchange.Tax is certain. This strategy is cited as a wise tax and investment method on top of being a real estate management device.

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 However, 1031 exchange will not take effect unless under specific regulations. The major rules on 1031 exchange properties explain that the total purchase of the like-kind must be equal or greater than the original cost of the sold property. The other is that all income received from the transaction should be used to purchase the like-kind.

Furthermore, there are also two timelines that are being followed for 1031 exchange. The first is the by which1031 exchange companies should find a like kind-property to acquire. The timeline defines this as exactly 45 days from the day the person puts up his property for sale. The 45-day rule should be strictly followed and cannot be extended.

Lastly, the other timeline is the where the selling 1031 exchange companies should receive the replacement investment. The exchange should be completed within 180 days from the transfer date. The Internal Revenue Service rule, the 180-day period, allows no extensions, requiring strict adherence.

For More Information, please visit our website at www.NetLeaseCapital.com.

When Real Estate Investment Opportunities Knock

When Real Estate Investment Opportunities Knock

According to a popular saying, opportunity knocks only once, which is why you need to open the door or spend the rest of your days wondering about what-ifs and could-have-beens. In the real estate investing business, however, opportunities don’t knock once. They knock as many times as possible, especially if you are good at what you are doing.

come in many form. They could come in the shape of fixer upper homes and handyman specials. They may also knock on your door as rental properties or commercial real estate. With real estate investing, the possibilities are endless.

Just like what the saying said, you need to open the door when opportunity knocks. It means that you have to be ready for it. And once the chance to make money in real estate comes to you, you must have the right equipment to take advantage of it.

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To take advantage of real estate investment opportunities that come your way, you have to expand your knowledge and sharpen your skills as a real estate investor. Listed below are some tips on how you should do it:

Attending real estate seminars and workshops can help you become well-equipped in case great come knocking on your door. Being part of such events can teach you some of the best ways on how to handle a particular deal.
Make it a habit to read books and study other instructional materials on real estate investing. Surfing the Internet can help, too, as there are numerous websites that offer quality real estate content for those who want to become real estate entrepreneurs.
Hiring a real estate mentor can help you prepare well for chances to make money in real estate. A coach can instruct you on the proper ways of a real estate investor, as well as stop you from making huge mistakes that can affect your career. In addition, working with a real estate mentor make investing in properties much easier because you have someone to ask an advice from whenever you are at a loss on what to do.

Being knowledgeable on real estate investing can definitely help you take advantage of great . So if you don’t want to miss the chance to rake in huge profits, you should plant the seeds of knowledge in your heart and mind.

For more real estate investment tips, go to www.REIWired.com.

REI Wired is the ultimate real estate investor network on the planet. The sole purpose of this site is to arm you with the cutting-edge real estate investing tactics being used by the hottest investors in the industry…so you can dominate your competition and close more deals… FAST.

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Real Estate Investment Loans: A Must For Real Estate Deals

Real Estate Investment Loans: A Must For Real Estate Deals

Thinking of making an investment in real estate? If you are, congratulations are in order because you’re about to open up a door to lots of money-making opportunities. But hold your horses, partner. Don’t take out your credit card or think of qualifying for a bank loan and using your house as collateral because professional real estate investors don’t do it like that.

You’re probably scratching your head, thinking how you are going to make an investment if you’re not going to spend your money. Well, don’t be confused because you are simply going to use other people’s money to make an investment in real estate. You’re going to obtain so you can protect your personal assets in case something goes wrong with a deal.

If you think real estate investors use their own money when making real estate investments, you’re sadly mistaken. These entrepreneurs are aware of the certain risks that come with their business, which is why many of them recommend using real estate investment loans when investing in properties.

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One of the real estate investments loans that real estate entrepreneurs are using to fund projects is private money. As the name implies, private money lending is a type of financing offered by private individuals rather than institutionalized lenders such as banks and mortgage companies. Private money lenders seek to make use of their idle money by funding real estate deals.

Another type of is called hard money loans. Like private money, hard money loans are offered by private individuals or small lending companies. They are mainly asset-based and lenders base their decision to approve or reject a loan on the after repair value of the property, for which the loan is being made.

What’s great about these types of non-traditional financing is that a real estate investor can secure funding for his investments even if he lacks creditworthiness. As long as he can assure both private money and hard money lenders that the property he wants to borrow money for can attract a good deal, then he will be able to get his money.

Be warned, however, that come with high interest rates and other fees. Because non-traditional lenders are willing to finance risky deals with their own money, they want to ensure that they will gain something even if a real estate deal fails to push through.

If you want to learn what’s the best method of financing for your real estate investments, visit www.REIWired.com.

REI Wired is the ultimate real estate investor network on the planet. The sole purpose of this site is to arm you with the cutting-edge real estate investing tactics being used by the hottest investors in the industry…so you can dominate your competition and close more deals… FAST.

Find More Real Estate Investment Articles

6 Tips to Take Your Real Estate Investing to the Next Level

6 Tips to Take Your Real Estate Investing to the Next Level

Taking your real estate investment business to the next level means going into territory you haven’t gone before to reap rewards you haven’t yet obtained.  I know a lot of people who do the same types of deals they did when they first started in real estate investing.  Now there’s nothing wrong with doing that if you’re content with what you’ve got.  But if you’re looking for something more, you’ve got to take on greater investment opportunities.  Here’s how to do just that.

I got into real estate investing because I wanted to make some serious cash.  I was sick and tired of struggling financially and I hated coming home tired every night.  Well, I found real estate.  I started doing some single family deals but after awhile, I found that I was still as broke as I was when I first started.  I needed cash flow and I needed it fast.  Go after bigger fish.  Commercial property investment deals offer some of the greatest cash flow and returns for an investment dollar.  The number of units and the size of the properties brought the largest returns for the amount of time and money I had invested in any deal.

To get to the next level in your real estate career, you must continually educate yourself.  Education enables you to find solutions to any challenges that may come up when you’re doing deals.  Education also helps to eliminate unnecessary risk.  Unfortunately, many investors believe that their lack of knowledge prevents them from doing the tougher types of deals like commercial properties.  That couldn’t be farther from the truth.  You must continually educate yourself.  Read books.  Attend seminars and don’t hesitate to ask questions.

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A good mentor helps you gain practical experience much quicker and more easily compared to books and courses.  Mentors help you navigate deals and overcome any show stopping challenges that may arise.  Mentors are your safety net in areas where you don’t know where you’re headed.  If you’re serious about taking your real estate investments to the next level, a mentor will help you get there quicker and with much less risk than if you were to do it alone.

There are many people who shun the idea of new investors taking on the risk of large, complicated projects like commercial real estate investments.  They’re right.  Commercial property investing is not for inexperienced investors or for do-it-yourselfers, but here’s the idea – let the experts be experts.  Your team of experts works to eliminate the risk of your inexperience and lack of knowledge.  You can get to the next level in your real estate investment career when you have the expertise of people who already know how to navigate their way through a deal.

Any business will fail unless it’s marketed.  Taking your real estate business to the next level means you must develop your marketing skills by putting them into action.  For example, I started marketing my business using direct mail.  At the time, I believed that it was the only thing I could do.  As I started to get responses, I started networking myself at places like local real estate investment clubs and with bankers.  Basically, I took one marketing strategy, learned it, and honed it until it produced a reward for me.  Then I started working other forms of marketing.  Your business is going to go to the next level when you start learning about and working more marketing strategies.

Attitude makes all the difference.  A person who thinks that they can’t do a deal that will take their business to the next level has already shot himself in the foot.  Without even trying, he’s already doomed to failure.  Conversely, a person who is hungry enough for success will attain it simply because he hasn’t given up.

No matter where you are in your real estate career, these tips will help you get to the next level.  Commercial real estate is the right vehicle that provides some of the greatest cash flows in the industry.  When you combine education, expertise, marketing, and the right attitude, you’ve got the makings for attaining greater investments and receiving better cash flow deals.  The next step is to take action.

 

Discover how you can start investing in real estate from someone who started investing in real estate while renting a one-bedroom apartment to being the owner of more than 7,500 units spread out across the beautiful US.

Want to know how to start investing in real estate with little money? Let me show you how I manage all my 7,500+ units so that you can do it too!

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