Capitalization Rate “Cap Rate”
A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor’s potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. If you want to get technical, it is basically the discount rate of a perpetuity. Capitalization Rate = Yearly Income/Total Value. Capitalization rate is a good jumping-off point to quickly compare many investment opportunities, but it should not be the sole factor in any real estate investment decision. There are a multitude of other factors that need to be looked at such as the growth or decline of the potential income, the increase in value of the property, and any alternative investments available.
For example, if Amanda buys a property that will generate $125,000 per year and she pays $900,000 for it, the cap rate is: 125,000/900,000 = 13.89%.
But it gets a little more complicated. What if the property’s value rises to $2 million two years later? Now the cap rate is a less favorable 125,000/2 million = 6.25%. This is because Amanda could potentially sell the property for $2 million and use that money for another investment.
It was our first time buying a home and it was pleasant!
Natsuki Tani was an outstanding buyer’s agent; the best I have ever worked with! From the moment I contacted Amanda Howard Real Estate and received my first phone call from Natsuki, she put me at ease with the buying process. She is so knowledgeable, always answered my questions thoroughly and provided great advice and guidance throughout the process. I was shopping for homes in Madison, Alabama while still living in Texas and …
Glinda Clardy was absolutely amazing! The entire process from start to finish was seamless and completely stress free. The team at Amanda Howard was on it!
Just bought a house with Glinda. She was great. Some tough situations came up, and she got us through everything. Helped us a find a place exactly like we wanted in the area we wanted too. Highly recommended
Our agent, Natsuki Tani, worked PATIENTLY with us for over 3 months to help us find a great house.
Wonderful to work with! They sold my home in about two weeks after listing!
Great experience! Meg Eldridge made us feel like her only client, and I know we weren’t! She had our best interests at heart, and I feel like she was responsible for getting us the best deal possible. She even called to check on us after everything was done and make sure we were still happy (and we are!). Thanks Meg!
Excellent and best service. Very attentive to my needs and friendly staff
I have never been so impressed with a real estate firm as I have been with Amanda Howard! My listing agent, Michelle Daymond, was honest, efficient and totally knowledgeable about all facets of listing a house for sale. This firm is completely up-to-speed on a technical level I have never seen in real estate. This was as stress-free as selling a home can be. Thank you.
100% LOVE working for Amanda Howard Real Estate! The honesty and integrity of our team makes working here a great experience personally and professional!!!