All Forum Posts by: Cam Shorrock

Hey Everyone! There is something about Cap rates that is getting me confused and I'm hoping someone can help me wrap my head around the concept. 

Cap Rate = NOI/Property Value.

Using this formula, if NOI goes up, and property value stays the same, then the Cap rate gets larger. 
Conversely, if NOI holds constant, and property value goes up, the cap rate gets smaller. 

Fundamentally, it would therefore seem like a high capitalization rate is better as it means you are getting a better price, or a property has higher income. 

HOWEVER, the consensus seems that high capitalization rate is often associated with higher risk. Wouldn't it be less risky since your money is more effectively producing NOI?

Am I being a bone head right now?