Updated over 6 years ago on . Most recent reply
Having trouble figuring out cap rate
Hopefully I have the correct category here... so I need help (please) figuring out my cap rate of these two properties (both sides of a double)
1st one purchased dec 2015 for $23,100(cash), rehab costs $17,000 (cash). Rental income $14,400/year, taxes $2900, Ins $504, utilities $700.
BRRRR- cashed out $60,000 and bought the other half last month, $40,000. This one will be about $15k to rehab. Rental income will be $12,900/year, taxes $2600, Ins $500, utilities $700. (Purchase and rehab $
Are from the loan I took on the other house) Loan payment on the $60k is $4860/year
What confuses me is where to add in the loan payment and do I then figure out the cap rate of the 2nd property with the purchase/rehab cost, but that cost is built into the 1st property. Don’t want to add it twice..
Thanks all!
Most Popular Reply
Fair enough!
Cap rate is a valuation metric that's normally used in commercial real estate. Even in residential real estate, it only applies to 5+ unit multifamily. So there is very little use in SFRs, duplexes, triplexes, fourplexes.
You can certainly calculate cap rate on just about everything that throws out revenues and expenses. Many investors calculate cap rate on SFRs, duplexes, etc when they are faced with choices where they need to figure out which one is the best. But once you own the property, cap rate doesn't do much. Like you said, you already knew the numbers were going to work and that's why you bought the deal but I bet you bought the deal not because it had a "good" cap rate. And I can bet when you later cash out and dispose of the property to move on to bigger and better things it won't be because the cap rate tells you it's time to sell... :-)
I'm just curious. There's just so much fascination with cap rate even in areas where it's not applicable (i.e. single family and 2-4 unit properties). Maybe because it's elusive? mysterious? It certainly isn't very useful...
Again congratulations and keep plugging along, I'm there with ya.
Cheers... Immanuel