Newbies - Stop Using Cap Rare to Qualify Investments!

[Ben Leybovich]

That's not what Cap Rate is for. used improperly as a metric of investment return (which it's not), capitalization rate can be highly misleading at best, and potentially flat out wrong!  

[Mike Landry]

OK.  I'll bite.  How do you suggest comparing different sfr performance amonst each other for analysis. I have an excel sheet that shows cash on cash, cap rate, equity, total return.  I like knowing the cap rate to get an idea of the potential compared to other properties in my area. Higher the cap rate the better.  it's good to use to keep it simple from financing and down payment variations,  which can be used to make something look better than it is.  

I don't use it as a market number to value any property. Only as an analysis based on my numbers to compare the property against my current ones and new properties im looking at.  Maybe you "professionals" don't want to call what I use a "cap rate" but that's what it is, just used differently....