Should I Use Cap Rate or ROI?

[Julie Silvestro]

Hi All,

I would like to play a game inside of the Bigger Pockets forum; nowhere else can I get the opinion of so many valuable industry professionals. The game is what do y'all think is a better word for my marketing purposes? Cap Rate or ROI?

In order to answer that you will need some context:

I am working on some content for a marketing piece, i.e post cards via snail mail. I can't decide if using Cap Rate vs. ROI in the messaging is witty or will disconnect us from our readers.

The post card will be going out to Apartment Owners and I want to illicit the best response possible. What a better way to get real data before we launch then to ask the community!

We are claiming our services can provide up to 60% Cap rate/ROI in most cases. I understand that Cap Rate is basically {Net Operating Income/Property Price} vs ROI is {Net Profit/Cost of investment}.

I feel that since it's not an actual Real Estate Investment but rather a supplement to real estate in terms of NOI, that it may sound weird to use it in this respect.

On the other hand I want to connect to the apartment owners with language they actually use; the problem with ROI is mainly I feel it has less of an industry flare and will not resonate.

There is much more to the post card than the following but this is where we are stuck. Please review the two sentence choices, vote on one and share your rationale.

1) Introducing a Revenue Generating Internet System - You Own it - We Operate it. ROI as high as 60%

2) Introducing a Revenue Generating Internet System - You Own it - We Operate it. Cap Rates as high as 60%.

Also, does anyone have a good reason why I should not use Cap Rate in this context?

[David Faulkner]

Definitely ROI ... saying that your service raises the CAP rate demonstrates that you either don't understand CAP rate or are trying to fool those that don't understand, and neither is good. Short of physically picking up a 10 unit apartment complex and moving it to another market, you can NOT change the CAP rate ... if you improve the NOI of a commercial property (5+ units), then you do NOT increase the CAP rate (which is set by the market), you instead increase the value of the property (Value = NOI/CAP). If you are trying to apply CAP rate to SFRs or under 5 unit buildings, and then saying your service will increase CAP, then you are using the term wrong twice.