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Understand Capitalization Rate Before Investing in Commercial Real Estate

May 2, 2014

If youbre not familiar with the term capitalization rate youbre not alone. However, if youbre thinking about investing in commercial real estate b even as a partner in a group b itbs a term you need to become familiar with. Youbll also need to understand how to estimate potential capitalization rate if youbre going to make a worthwhile profit on your Florida commercial real estate investment.

  • Capitalization rate is the expected rate of return on a property based on the expected income the property will generate.

  • There is a basic formula for calculating capitalization rate. To determine capitalization rate, divide the income the property will generate, after repairs and variable costs, by the value of the entire real estate property if it were put up for sale today.
  • Figuring out the capitalization rate of a property will give you a figure that can be used to make part of your decision on whether the property will provide the return that you need. However, it shouldnbt be your only tool when evaluating a commercial real estate investment property.

Contact us at Morris Southeast for more information and tips on Florida commercial real estate investment to help you earn money this year.

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