I've worked with dozens of agents and dozen of investment property owners and their constant misrepresentation of cap rate has lead to this post. I have YET to see any one of them provide a proper cap rate and just wanted to let the folks at BiggerPockets know that in my experience almost every provided cap rate is wrong.
Most of the time the seller only includes basic expenses, such as taxes and maybe insurance. In general they often leave out significant expense items, such as repairs. I'm amazed at how many properties I've seen that magically require ZERO repairs over many years.
Cap rate is ALL EXPENSES, except loan/finance servicing. This is everything. Lawn maintenance, repairs, utilities, etc. Another amazing fact is that properties are magically 100% rented 100% of the time. Another trick is they will use future income numbers. How many times have I heard "well you could rent this for $X more dollars", sometimes rents may be low, but you should know the rates in your area and know if they are giving you the real numbers or future expectations. I recently closed a deal where in the due diligence phase the rent rolls were much LESS than what was provided. Again, it's magic how the rent rolls are never more.
Don't let these people fool you. I've seen far to many folks stating cap rates that are NOT even close to the true cap rate. Advising these folks that this is NOT the cap rate is to no avail.
Be smarter, run a proper CAP rate and stick to your numbers.