CAP RATE QUESTION

[Thomas Klose]

Hi, 

I´m currently starting to invest on real estate. My first transaction was a sale and leaseback operation. It went out well and we are currently seeking similar transactions. We are investing between 20-30% and the rest is financed by our bank. By doing this both ROI and CAP RATE indicators look good.

However, I have takes to some people that evaluate the CAP RATE by: dividing the INCOME/SALE PRICE. They leave out behind the Expenses.

Is this a correct way of getting a CAP RATE? any comment will be appreciated.

Thanks

Thomas

[John T.]

@Thomas Klose 

Capitalization Rate = Net Operating Income / Value

Net Operating Income is calculated as follows:

Gross Scheduled Income

less Vacancy and Credit Losses

= Gross Operating Income

less Operating Expenses

= Net Operating Income