DETERMINING CAP RATES %
Cap Rate or Capitalization Rate is determined by dividing the Annual Net Operating Income (NOI) by the Purchase Price (Value). The higher the Cap rate, the better the investment for the buyer. The lower the Cap Rate, the better the investment for the seller. A higher Cap Rate will bring a lower selling price (good for the buyer). A lower Cap Rate will bring a higher selling price (good for the seller). Commercial and investment real estate is often sold based on Cap Rates at which comparable properties are selling in markets or submarkets, specific to certain property types. For example, the going Cap Rate in Seattle for apartment buildings may be 6%, while the going Cap Rate in Seattle for single-tenant retail propeties may be 7.5%.