Tips on Cap Rates

1. We all know the better the area, the lower the Cap Rate. Average-quality buildings in the wealthiest part of town commonly sell at Cap Rates of 6.5% or lower.

2. The more reliable the income stream, the lower the Cap Rate. For example,
an office building with a 20-year lease from Apple Computer might sell at just
a 4.5% Cap Rate.

3. The more vacant land surrounding or close to the property, the higher the
Cap Rate. The reason why is because if rents ever increase too high, some
developer will quickly throw up a competing building.

4. Buildings in successful downtown areas sell for absurdly low Cap Rates 3.5%
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