All Forum Posts by: Paolo Agostinelli

Cap Rate is based on yearly Net Operating Income (NOI). NOI is calculated by subtracting income from your expenses. Start with gross rents, then subtract vacancy, prop mngt, taxes, insurance, utilities, repairs, capital expeditures, etc. Do not include the debt service (your mortgage paymet) in this calculation. Once you have your NOI, divide by purchase price to find cap rate. NOI = Income - Expenses CAP Rate (%) = NOI / Purchase Price

I would be concerned about renting back to the owner in any capacity. They have already proven that they are not capable of maintaining the house and paying their bills, so I wouldn't expect anything different from them as a tenant.