Updated about 10 years ago on . Most recent reply
Why is caprate real estate specific
I, and several others, hijacked another post and went down a rabbit hole regarding cap rate calculation. I don't understand why cap rate is considered a real estate equation. In fact, IMO, one of the strengths of equations like cap rate, ROI, ROE is there ability to evaluate and compare any class of investment.
For example, If I purchase $10,000 in bonds and it pays me $100/year in dividends, I am getting a .01% cap rate. If I put the same $10,000 down on a $50k house and I get an NOI of $5,000 then I have a cap rate of 10%. With those 2 numbers I can now decide whether the risks for the higher cap rate are worth it to me or if I just want to plunk my cash down in bonds.
What am I missing?