Help with figuring out cap rate

[David Jenkins]

I'm a realtor / investor who has a few investment properties that cash flow well. In the past I've done nothing more than a napkin analysis to figure out cash flow, which has somehow worked. 

Now I'm finally getting around to learning how to determine cap rate. Taking a first crack at it with a 4-unit building for sale near my other investment properties. Here's what I have so far: 

Asking price: $1,174,000

GOI: $77,040 annually

They provided no expenses on the listing, so I am estimating them based on two other 4-units I own in the area.

- Water & Power: $1800 annually

- Gardner: $1440 annually

- Repairs: $5000 annually

= 68,800 NOI = Cap of .05%

Does this look even remotely close? 

I take it that I do not take into consideration some of my future expenses such as mortgage, taxes and insurance to also determine the cap -- Or do I? 

Thanks!! 

[David Faulkner]

Originally posted by @Brie Schmidt:

@David Jenkins - You OP was asking about how to calculate cap rate.  We are telling you how to determine cap rate.  If you are looking to determine cash flow that is a different metric and will take into consideration what loan type you use.  

Just to stir the pot a bit, I'll make the @Bob Bowling memorial comment: You never CALCULATE CAP rates, ever. The market sets them ... you determine CAP rate via comparable recent sales of similar class of commercial property in the same market. You then use the CAP rate you obtain through comps to calculate the fair market price based on the NOI of the subject commercial property. If after purchase you raise the NOI of the property, you do NOT calculate a new CAP rate. You have NOT raised the CAP rate as it remains set by the market. You instead you have raised the value and can calculate a new higher market value based on the new higher NOI and the market CAP rate. And if the subject property is smaller than 5 units, then it is a residential property not a commercial one ... you can forget about CAP rates altogether as they only apply to commercial property and instead use comparable sales prices for residential just like the banks, appraisers, and other knowledgeable RE professionals would do. BTW, Brie probably understands this already but am not sure the OP understands it, yet.