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When applying for a
commercial real
estate loan in
is helpful to have
an idea what the
value of your
commercial income
producing property
is. The following is
the method of
calculating a CAP
rate.
Direct
Capitalization (CAP)
is a method used to
convert a property's
annual income, into
an estimate of the
property's
value.
Direct
Capitalization Rate
Calculation
The Direct
Capitalization Rate
(CAP Rate) is
defined as follows:
Value
= Net
Operating Income
Overall
Capitalization Rate
For Example:
V = $3,913,043
NOI = 450,000
CAP Rate = .115
$3,913,043 =
$450,000
.115
The CAP Rate in the
above example is
11.5% (.115 X 100 =
11.5)
Other derivatives
of the formula are
as follows:
Net
Operating Income =
Overall
Capitalization Rate
X Value
Overall
Capitalization Rate
= Net Operating
Income
Value
The formula for
calculating Net
Operating Income is
as follows:
Potential gross
income (all figures
are on a annual
basis)
Scheduled
rent
$xxxx
Other
income
$xxxx
Total
potential gross
income
$xxxx
Vacancy and
collection
loss
-xxx
Effective gross
income
$xxxx
Operating expenses
Fixed
$xx
Variable
$xx
Replacement
allowance
$xx
Total
operating
expenses
-$xxxx
NET
OPERATING
INCOME
$XXXX
CommercialBanc uses
this basic method of
valuing a property
when pre- qualifying
a commercial loan
request. When
applying for a
commercial real
estate loan of
apartment loan,
please have income
and expense
information
available.
To learn more about
CommercialBanc's
commercial real
estate loan and
apartment loan
programs contact a
commercial mortgage
loan specialist at
1-866-706-BANC.
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