Likely the single most misunderstood concept in all of real estate investing is the Capitalization Rate. So, what is it really, and how do we use it?
It’s a Formula
Yes, it is a formula: Cap Rate = NOI / Valuation
However, while this is the mathematical formula, if you simply focus on the numbers instead of the perspective, you will miss the forest for the trees.
So, What’s the Perspective
The perspective, simply put, is that the Cap Rate should be used as a measure of the market, and should never be used as a means of determining returns or how much to pay for a property.
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The rest of the epizodes of my new Multifamily Syndication Unscripted podcast can be found here:
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