Capitalization Rate Calculator
What Cap Rate Should I Use to Value a Property?
Cap rates can be used to calculate the value of commercial and other income producing properties. Compare the cap rate for a candidate property with the cap rates for comparable properties to determine its value. Look for properties that have the same use (e.g. Multi-Family, Office or Industrial) and and class. Commercial buildings are usually classified as A, B or C properties where A = above average, B = average and C = below average. Some investors add D as a 4th classification to indicate properties with significant problems.
Property class and market conditions influence cap rates. For example, cap rates in New York City are lower than cap rates in Orlando because land is scarce in NYC. The following table shows typical cap rates for Florida multi-family properties in 2011.
|Class||Property and Tenant Profile||Cap Rate|
|A||Less than 10 years old, white collar workers in a good area with strong demographics||7 and below|
|B||Less than 20 years old, mixture of white and blue collar workers decent neighborhood||7.5 to 8.25|
|C||Around 30 years old in decent condition, blue collar and Section 8 in an OK neighborhood||9 to 10|
|D||Property with significant issues, rough property, rough area, drug dealing tenants||Over 15|