The Cap rate takes into account the vacancy factor and the operating expense. It is a well-known industry measure and it does not have to forecast future income.
What are some disadvantages of using Cap rate?
The property’s future appreciation and depreciation, the financial leverage and mortgage amortization, income taxes and market risk have not been taken into account. Therefore, a knowledgeable real estate investor has to use other methods of analysis to take into account the above items.
It is important to work with your team of professionals to be able to sort through the markets, properties and industry lingo! Make sure to your attorney, your CPA and your commercial agent are experienced and well versed in commercial real estate.
Contact me if you have any questions about any commercial real estate CRE concepts or lingo!
