In real estate investing, the focus should be finding “GREAT” deals. Never fall in love with a property. The numbers must work. Close your eyes and run the numbers. In most cases it takes time to realize a good return on a real estate investment but it’s worth the wait.
Take a look at the cap rate or capitalization rate. The cap rate is the return on the property based on the income it will generate. It is used to estimate the potential return on investment.
To calculate the cap rate, divide the net income by the total value of the property. Keep in mind that as the property value increases your cap rate will decrease, which at first glance would seem like a bad thing, but it isn’t because your property has increased in value resulting in an increase of your net worth. When this happens sometimes it’s good to sell the property and invest again!
Please share the cap rate of your investments in the comments section if you have commercial property.