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Landlord's
Cash Flow Analyzer
®
(Annually: Up to 20-Years)

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Flipper & Rehabber's
Cash Flow Analyzer
®
(Monthly: Up to 24 Months)

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"I just used your software to purchase a huge complex.  The sellers did not know what to say except that I must have used a very expensive software package."

Jeffrey P.,
Clinton, IL

"I liked your software so much that I ordered a copy for my friend."

Chet V.,
Ozark, AL


 

Definitions


Internal Rate of Return

Modified Internal Rate of Return (MIRR)

Net Operating Income (NOI)

Loan to Value Ratio (LTV)

Cash on Cash Return

Capitalization Rate

Gross Rent Multiplier (GRM)

Debt Coverage Ratio (DCR)

Real Estate Terms

 

Capitalization Rate (Cap Rate)


The Capitalization Rate (“Cap Rate”) is a ratio used to compare properties with different valuations, and to also place a value on a property based on the income it generates.  The Cap Rate is computed by taking the rental net operating income (NOI) and dividing it by the property's fair market value (FMV).  The higher the Capitalization Rate is the better.

Cap Rate - Practical Use #1

You can use the Cap Rate to value your property.   Let's say that your property generates $10,000 of annual net operating income.  Your real estate agent tells you that the Capitalization Rate in your area is approximately 4%.  That would mean that the approximate fair market value of your property is $250,000 ($10,000 / .04).


Cap Rate - Practical Use #2

Let's assume that you are looking at investing in two properties.  The first property has a projected NOI of $20,000 and an asking price of $500,000.  The second property has a NOI of only $10,000 but an asking price of $110,000.  Which one would the Cap Rate suggest is a better investment?  That's right, the second property since the Cap Rate is 9% ($10,000 / $110,000) versus 4% ($20,000 / $500,000).

If you are able to obtain reliable capitalization rate data, you can then use this information to compare to the output that the Landlord’s Cash Flow Analyzer ® Pro gives you based on your input.  This will help you to gauge whether or not the asking price for a particular piece of property is over or under priced.

 

 

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Douglas Rutherford, CPA

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Rental Software.com LLC
375 Rockbridge Rd, Suite 172
Lilburn, GA 30047


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