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Traditionally, the cap rate has been one of the indicators for valuing investment property. Simply stated, the cap rate shows the rate of return an investor receives before debt service. You can calculate it by taking the net operating income of the property and dividing it by the purchase price. The answer will give you the cap rate related to the property.

There are a number of factors that help establish the cap rate of a place. We’ll look at each of these in the following list. Overall, they’ll give you a sense of what’s involved with these figures, which can be helpful as you evaluate properties you’re interested in.

Different assets have distinct associated risks with them. For example, multifamily is typically viewed as the most stable investment. If you own a 100-unit apartment building and you lose one tenant, you’ve only lost 1% of your rent role….Story continues…