Going-in Cap RateRealized1031.com2020-11-09 08:00:00
Going-in Cap Rate
Going-in-cap rate is the cap rate based on the ratio of the first year of net operating income to the property purchase price.
For example, if a property is expected to generate a first year net operating income (NOI) of $100,000 and is valued at $1,250,000, it would have a cap rate of 8.0% ($100,000 / $1,250,000).
For acquisitions, some firms annualize the 12-month NOI by taking one month and multiplying it by 12 or taking the forward three months and multiplying them by 4. Also, the purchase price does not include any closing costs.
Development projects use a slightly different calculation. Total project costs are used in this case. These costs include land, legal, closing, financing fees, other fees, and construction debt interest. Developments may refer to the going-in cap rate as the (forward) stabilized cap rate. The calculation is also different from that of the acquisition calculation:
[forward stabilized cap rate] / [total project cost]
Because development projects are new construction and start with no tenants, the stabilized cap rate doesn’t come into play until all property units are leased, and cash flow is being generated. This differs from an acquisition, which has cash flow from the time that the property is acquired.
Download The Guidebook To IPWM
Learn More About How Investment Property Wealth Management works.
Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized”). Securities offered on this website are offered exclusively through Thornhill Securities, Inc., a registered broker/dealer and member of FINRA/SIPC("Thornhill"). Investment advisory services are offered through Thornhill Securities, Inc. a registered investment adviser. Thornhill Securities, Inc. is a subsidiary of Realized. Check the background of this firm on FINRA's BrokerCheck.
Realized does not provide tax or legal advice. Tax topics discussed are for educational purposes only and are not a substitute for professional tax advice. You should discuss your personal situation with a tax or legal professional.
Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of the services referenced on this site are available in every state and through every representative listed. For additional information, please contact 877-797-1031 or email@example.com.