28% cap rate

[Joe Boggin]

total investment for my first rental before i get a security deposit and first month rent is roughly 25k. im planning on 800 a month rent (already rented just need to close). if i can assume 600 NOI monthly (i dont have a mortgage) that puts me at around 28% cap rate. (600 x 12 = 7200/25k = .28)

im using 600 as my NOI based on insurance and maintenance...

i know some here on BP say cap rate is not extremely important unless you are into large commercial properties or comparing several units side by side. but im guessing this number should be arousing in some capacity....even if it my first rental?

[J Scott]

Your NOI is way off...

You include insurance and maintenance, but what about:

- Taxes
- Turnover
- Vacancy
- Rent Loss/Concessions
- Capital Expenses
- Utilities
- Lawn Care/Snow Removal
- Property Management
- Evictions
- Accounting
- Legal

In general, you should expect NOI to be closer to 50% of gross income (yup, 50% of your income will go towards expenses, rent loss and capex).

So, using that mathematical model, your NOI is closer to $400/month, or about $4800/year.

That's a cap rate of about 19%, which is still great...just not as great... :)