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cap rate is the ratio between the grid operating income Note that a real estateappraisal in the U.S. uses net operating income of the asset, because it does not frankly affect the cash generated by the benefit.

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Q: What does cap rate mean in real estate?
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Why is the Cap Rate used to evaluate Real Estate?

This is used in real estate to measure return on investment, otherwise known as ROI. Another term that is much more familiar to people includes the term net income.


What is the market cap for Pennsylvania Real Estate Investment Trust PEI?

As of July 2014, the market cap for Pennsylvania Real Estate Investment Trust (PEI) is $1,312,961,064.70.


What is the market cap for Vanguard Global ex US Real Estate ETF VNQI?

As of July 2014, the market cap for Vanguard Global ex-U.S. Real Estate ETF (VNQI) is $2,174,406,000.00.


How do you find a capitalization rate?

The capitalization rate is dependent on what investors want to earn on their money when investing in commercial real estate. It is somewhat tied to the prevailing interest rates as investors can choose other choices if real estate does not provide a sufficient return. You compute the prevailing rate if you divide the price a property is being offered at by the NOI (Bet Operating Income). Each building could vary but there should be a level that is common for most buildings that are in the same market (type, condition and location). Many times the NOI can be misstated so check the details to see what has been assumed when the NOI was computed. Garbage in, garbage out otherwise. Knowing how to find a cap rate is easy once you know exactly what one really is. You probably have heard of a PE ratio in stocks. A PE ratio of 18 means the stock is selling for 18 times earnings. With earnings per share of 2.00, the stock would be selling for 2.00 x 18 $36 per share. Well, a cap rate is the inverse of a PE ratio and it is used in real estate instead of the stock market. For example, lets look at a PE ratio of 8. Earnings per share 1.00. The stock would sell for 1.00 x 8 $8 per share. Now real estate, same 8 multiple. The inverse of 8 1/8 12.5% (cap rate). Annual earnings per square foot 1.00. Since a cap rate is the inverse of a PE ratio, you divide instead of multiply. 1.00 / .125 $8 per square foot of market value. So, a cap rate expresses the relationship between earnings (net income in real estate) and market value. In real estate text books, cap rates are expressed with the letter R. Net Income is the letter I and market value is the letter V. Using simple algebra, there are three ways to express this relationship: V I / R I V x R R I / V Ooops... that last formula tells you where to find capitalization rates (the original question). Simple. Find some sales of properties. Find out what their net income was at the time of sale. Divide that income by the sale price. That gives you a cap rate. Do that with 5 sales and you will have a range of cap rates. Give the greatest weight to the sales which are the most comparable to the subject property being appraised and you will have a weighted average cap rate you can use to "capitalize" (divide) your subject's pro forma net income (over the next 12 months) into a current market value. One last comment -- a bit technical -- but if you don't know the net income of the sales you can take each sale's asking rent, less observed vacancy at the time of sale and estimate the cap rate with the following formula. (Note: you will need to know the typical operating expense ratio (OER) for that property type of that age. Brokers and property owners can tell you this. For example, many multifamily properties have OERs in the 35 to 40% range -- depending on age, condition, location, etc.) Formulas: First calculate Effective Gross Inc Multiplier (EGIM) Sale Price / (Gross Rent Less Vacancy) ... then you can calculate the Cap rate (1 - OER) / EGIM Let's put some numbers on it to make sense: Gross Rent 1.00 Vacancy 10% Eff Gross Inc 0.90 Sale Price 7.00 EGIM 7.00 / 0.90 7.7778 OER is assumed to be 38% based on local info from brokers. Overall Cap Rate (OAR) (1 - .38) / 7.7778 7.97% Now let's apply the cap rate to prove it works: Value Net Inc / OAR (V I / R) Effective Gross 0.90 Operating Expenses 38% of that, or 0.342 Net Inc .90 - .34 .56 Value .56 / 7.97% 7.00 (Look back at the beginning Sale Price... 7.00)


Where can you find statistics on the real estate market?

That is a good questions. There are many ways of educating yourself regarding the real estate market cycle and the trends within it.I don't know exactly what type of real estate you are interested in learning about so I will just give you some basic ones. For residential real estate it is helpful to research the Office of Federal Housing Enterprise Oversight. It will give you some good trends of the appreciation history in every state. You can also speak to your local real estate agent and ask them to give you a comparative market analysis. For commercial the best way to find out more about vacancy rates, cap rates and more you should speak with a CCIM. You will also find a mountain of solid information if you work with Real Estate Investment Groups. Just make sure that they smoke what they sell. I hope this is helpful information for you. ---------------------------------------------------------------------------- == == Any real estate professional worth their weight will be able to give you statistics of their area of expertise. Most also have a software program that gives them facts and figures for a state or county or however specific you want to get. There are many sites available , one of them is axiomestate. or try realty digest on google.

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