Kitchener Waterloo Real Estate Investment Blog | Apartment Buildings | Condos | Development Land | Student Housing » cash on cash

Investment Real Estate Terms: Cap Rate & Cash on Cash Return

Benjamin Bach, the Wealth Team — Thu, 18 Mar 2010 23:56:02 +0000

One of the questions I get a lot is “whats the cap rate on this one?” Real Estate Investors looking to gauge their return on an investment property like an apartment building will often use the cap rate as a rule of thumb, a quick (but very limited) statement of value.

What is a cap rate? Is it a good indicator for the return you hope to generate on your return? Is there a better figure to look at?

This video takes a look at these questions, so we can better understand some commercial real estate terms

Cap Rate, or capitalization, expresses the ratio between the net operating income a property produces, and the value. It shows up, based on income, what a typical investor (or ‘the market’) is willing to pay for the income the apartment building produces.

Cap rate = Net Operating Income / Price (or value)

When we’re evaluating properties and we want to determine what we’ll pay for a certain apartment building, we will rework the formula to look like this:

Value = Net Operating Income / Market (or desired) Cap Rate

Cap rate does not take into the financing available, so unless you are buying a property in CASH, that is, without a mortgage, you’re going to want to factor in the cost of debt into your return calculations.

That brings us to Cash on Cash return, which is:

Cash Flow Before Taxes / initial investment

We calculate Cash Flow Before Taxes by:

Gross Rent – owner’s operating expenses – mortgage payments = Cash Flow Before Taxes.

Cash on Cash gives you a more precise return, because it accounts for the cost of the debt we use to purchase the property

If you have any questions about commercial and investment real estate in Kitchener Waterloo, Ontario, send me an email to Benjamin AT BenjaminBach.com, call me at 519 772 4376, or @benjaminbach on twitter. I’d love to connect with you!

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What Student Rental apartment buildings can you buy in Waterloo?

Benjamin Bach, the Wealth Team — Fri, 22 Jan 2010 21:01:15 +0000

…and what return will you get on your money by investing in these student properties?

This is something I’ve been asked a lot recently, especially with the news that CMHC is now back in the student rental financing game.

In this video, we look at a 180 bedroom property that an investor is considering near both Universities in Waterloo. It is brand new, in a great location, and fully leased at favorable rates.

If you’re interested in buying, selling or developing a student rental property in Kitchener Waterloo, I’d love to talk to you. Call me at 519-772-4376 or email me for a complimentary no-obligation investment consultation

PS – Make sure you’re following our updates here http://twitter.com/BenjaminBach

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Understanding Investment Real Estate Terms

Benjamin Bach, the Wealth Team — Wed, 04 Nov 2009 20:13:58 +0000

Ever heard real estate investors talking about NOI, the gross, Cash on Cash return or comparing caps, and not known what they were talking about? In this video, I explain some of the terms investors use when looking at investment opportunities. Even if you’re shopping outside of Kitchener Waterloo, understanding these terms will help you be a more educated investor.

Click the video above to learn about Net Operating Income, Gross Rental Income, Operating Expenses, Cap (short for Capitalization) Rates and more

What terms would you like explained? Let me know in the comments, by sending me a reply on twitter (@benjaminbach), or via email, Benjamin[AT]BenjaminBach[DOT]com

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