CALCULATING CAP RATE FOR VICTORIA BC APARTMENT INVESTMENT|PART 2

By
Real Estate Sales Representative with RE/MAX Camosun Victoria BC Real Estate BC Licence #001159

New Apartment-Calculating CAP RatesPART 2-CALCULATING CAP RATE FOR VICTORIA BC APARTMENT INVESTMENT

SEEPart 1- CALCULATING CAP RATE FOR APARTMENT BC INVESTMENT

 

Using Cap Rates In Victoria Wisely
Image titled Figure Cap Rate Step 4

1 Calculating CAP rates to quickly compare similar Victoria Apartment investment opportunities. The cap rate basically represents the estimated percent return an investor might make on an all-cash purchase of the property. Because of this, cap rate is a good statistic to use when comparing a potential acquisition to other investment opportunities of a similar nature. Cap rates allow quick, rough comparisons of the earning potential of investment properties and can help you narrow down your list of choices.[6]

  • For example, let's say that we're considering buying two pieces of property in the same neighborhood. One has a cap rate of 8%, while the other has a cap rate of 13%. This initial comparison favors the second property. It has a higher cap rate, so it is expected to generate more money for each dollar you spend on it.[7]

Image titled Figure Cap Rate Step 5

Don't use CAP rate as the sole factor when determining an Victoria investment's health. While cap rates offer the opportunity to make quick, easy comparisons between two or more pieces of property, they're far from the only factors you should consider. Real estate investment can be quite tricky - seemingly straightforward investments can be subject to market forces and unforeseen events beyond the scope of a simple cap rate calculation. At the very least, you'll also want to consider the growth potential of your property's income as well as any likely changes in the value of the property itself.[8]

For example, let's say that you buy a piece of property in Victoria for $1,000,000 and you expect to make $100,000 per year from it - this gives you a cap rate of 10%. If the local housing market changes and the value of the property increases to $1,500,000 suddenly, then you may have less-lucrative cap rate of 6.66%. In this case, it may be wise to sell the property and use the profits to make another investment. However, it is also possible that the income levels may have increased, or the expense levels may have decreased. Make sure to look into all of the factors involved when determining the cap rate.

Image titled Figure Cap Rate Step 6

Use the CAP rate to justify the income level of the investment property In Greater Victoria. If you know the cap rate of properties in the area of your investment property, you can use this information to determine how much net income your property will need to generate for the investment to be "worth it". To do this, simply multiply the property's asking price by the cap rate of similar properties in the area to find your "recommended" net income level. Note that this is essentially solving the equation (Net income/Asking price) = cap rate for "net income".

  • For example, if we bought a property for $400,000 in an area where most similar Victoria BC properties have about an 8% cap rate, we might find our "recommended" income level by multiplying 400,000 × .08 = $32,000. This represents the amount of net income the property would need to generate per year to get an 8% cap rate. However, keep in mind that you cannot set rental rates based on the cap rate. They must be based on market rates and consider how this rental would compare to other rentals in the area.
  • Source Carla Toebe 

Orginal Blog Source:

SEE- PART 1- CALCULATING CAP RATE FOR APARTMENT INVESTMENT.

SEE: PART 2-CALCULATING CAP RATE FOR VICTORIA APARTMENT INVESTMENT.

E&O

Posted by

 

HAVE YOUR BEST YEAR EVER IN 2015 !

 Link to My web SiteTwitter Fred Carver     Find Fred on Google  Fred Carver on Facebook    Fred Carver on LinkedIn

Fred Carver on YouTube Follow Me on Pinterest  Connect with Fred Carver on Google+

Google Me Fred Carver

 

  "Selling Victoria Residential & Income Producing Properties since 1971"

 

Cheers

Fred Carver

Personal Real Estate Corporation

RE/MAX Camosun
Accredited Consultant in Real Estate®

“Recognized by ActiveRain as a 2013-2014 Top Contributor for Real Estate Blogging.”

Direct 250-598-2963   

Over 40 Years Experience selling Real Estate does make a Difference.. call Fred today to Put his 40 years experience to work for You.

4440 Chatterton Way, Victoria, BC V8X 5J2
Calling from Out Of Town? Call Toll Free 1-800-663-2121

Find Hundreds of Home For Sale in Victoria BC

Post Copyright © 2016 By Fred Carver Real Estate Corporation All Rights Reserved

Fred Carver Top Realtor Victoria BC

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate General Information
Location:
British Columbia Capital Area Victoria
Groups:
RE/MAX Active Rain Bloggers
Canadian RE/Max Agents, Mortgage Brokers, Home Staggers Etc.
Commercial Property Haves / Needs
Fairfield Victoria Real Estate Blog
Oak Bay Real Estate
Tags:
fred carver apartment investments
calculating cap rate for victoria bc apartment investment

Spam prevention

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
1,059,494

Fred Carver Personal Real Estate Corporation

Accredited Real Estate Consultant
Let me help you Find or Sell Your Home Just Email 24/7
*
*
*
*

Additional Information