Today I’m going to talk a little bit slower, because there’s something very important to understand: the CAP Rate.
The Capitalization Rate is the rate at which the NOI repays the purchase price on an annual basis. The CAP Rate helps you understand the market condition and calculate the value of any given multifamily property.
Here is the formula:
So you have net operating income divided by the cap rate equals the current market value of a property. So knowing two of the variables, you can solve for the other one.
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Patrick Grimes is a design engineer and CEO and Founder of Invest on Main Street, LLC. His real estate holdings include general partner ownership of a multifamily and single-family real estate portfolio valued over $146M, including 1,950+ units across the southeastern United States and Texas.
He has been active in real estate investment since 2007, including purchasing land and distressed assets, renovating them, and stabilizing them for long-term cash flow. To scale his real estate portfolio, Patrick moved from single-family to multifamily investing and founded Invest on Main Street, a private equity firm specializing in multifamily value-add projects in emerging markets.