CAP RATE

[Cody Clark]

Can someone please explain exacltey how do CAP rates work, does it go off the sales price or the money you put into it. lets say an apartment building for $500,000 with a 10% cap rate. Does that mean $50,000 a year in return? thanks

[Don Levy]

Mike you are being a little too cynical. Just because someone has the real cap rate doesn't mean he will succeed or fail. As an ex-appraiser who had to use cap rates as an indicator of value I know that someone who knows what he is doing can rely on a cap rate to make a prudent real estate decision.
Cap rates are immaterial to most investors because they don't know how to use them. Just because I said you are cynical doesn't mean I don't agree with many of your views.

Good luck,
donrock