All Forum Posts by: Nicholas U.

 Wow...  Thanks everyone for all the feedback on Cap Rates!  I am very glad I posted this thread.

@Matt Sinn I think your example continues to help fill in some gaps. 

I live in Lafayette, IN but have family in Indianapolis and am looking at property there too as an option.  I am also pretty new to the game and would be happy to talk!

Thanks everyone! This helps clear things up some for me. I knew CAP rate didn't apply to SFH but I thought it did for multifamily units. @Erik W. I am assuming Holding Costs is the same as Carrying Costs.  I have already been looking into this but just want to make sure.

Hello all!  Newbie investor here and I was hoping for some clarification on Cap Rates.  Currently I own 1 rental and looking to buy my first multifamily investment property, but I am cautious and want to make sure I fully understand what I am getting into.

So reading about Cap Rate it seems pretty easy to understand... CAP = NOI/Purchasing Price.

Now this is where I feel like I am losing it... Cap Rate measures risk and rate of return; however, what I read is generally that the lower the Cap Rate the better. But that means the lower the NOI the lower the risk.

Example: One of the properties I am looking at I believe is valued around $190,000.00. It is a 3 unit multifamily that could get on average about $800.00 per unit. I calculated NOI on the property believing that after expenses (not including mortgage) I would be making around $19,000.00/year as a conservative estimate. So this would = 10% cap.

But if we just dropped the NOI down to $10,000/year then this would be a 5% Cap. What am I missing? Wouldn't the higher the NOI reduce the overall risk?

I feel like I am missing something blatantly obvious. 

Thanks!

@Michael Ealy can you send me your analyzer as well?  Thanks!