Capitalization Rate
Le taux de capitalisation, est un moyen simple de déterminer si un investissement immobilier est une bonne affaire. Il vous indique combien d’argent vous pourriez gagner avec une propriété par rapport au prix que vous avez payé pour celle-ci. Pour le rendre facile à comprendre, décomposons le taux de capitalisation en étapes et expliquons-le avec un exemple simple.
What is the capitalization rate?
Think of the cap rate as the score of an investment property. This is a percentage that indicates how quickly you will recoup the money you spent to purchase the property, based solely on what the property itself brings in each year (not including loans or taxes that you could get by owning it).
The simple capitalization rate formula
The formula for calculating the capitalization rate is as follows:
• You take the annual profit of the property (which is the money it makes after paying for things like repairs and management), then
• You divide this number by the value of the property (or the price you bought it for).
And then, to make it a percentage, you multiply it by 100.
How to calculate it step by step
The formula for calculating the capitalization rate is as follows:
• You take the annual profit of the property (which is the money it makes after paying for things like repairs and management), then
• You divide this number by the value of the property (or the price you bought it for).
And then, to make it a percentage, you multiply it by 100.
How to calculate it step by step
1. Determine the annual profit: This is the money you receive from rents and all other fees, minus what it costs to run the place (such as paying for repairs, maintenance and insurance).
2. Know the value of the property: This is either the price you pay to buy it or its current market value.
3. Do the math: Divide the annual profit by the property value, then multiply by 100 to get your cap rate percentage.
A simple example
Let’s say you are considering purchasing a building for $1 million. You expect to make $100,000 renting it every year. But it costs $20,000 a year to maintain the building. Here’s how you would calculate the cap rate:
1. Your annual profit is $100,000 (revenue) – $20,000 (expenses) = $80,000.
2. The building is worth $1 million.
3. So, $80,000 (profit) ÷ $1,000,000 (value) × 100 = 8%.
Your cap rate is 8%, which means you get an 8% return on your investment each year based on the current value or price of the property.
Why the cap rate is important
The cap rate helps you compare different real estate investments to see which one could bring in the most money. A higher cap rate could mean more profits, but perhaps also more risks. A lower cap rate could be safer, but with fewer profits.
Remember…
The cap rate doesn’t tell you everything. It doesn’t show how property values might increase or what will happen to the neighborhood. This also does not include the cost of borrowing to purchase the property. So while this is a quick and convenient check, you should also look at other things before deciding to buy.
In short
The cap rate is a quick way to see if an investment property could be profitable. It is easy to calculate with a simple formula and it helps you understand what your return on investment could be. But remember that this is only part of the overall picture.
