Previously, in the Real Estate Financial Planner™ software we calculated the Capitalization Rate (often abbreviated Cap Rate) for each given Property as:
Capitalization Rate =
Current Net Operating Income ÷ Original Purchase Price
And that was helpful—especially when trying to determine what the initial Cap Rate was at the time of purchase. We did provide a Chart of Cap Rate over time as well which was always the then current Net Operating Income divided by the original Purchase Price of the Property. However, there was not an easy way to see what the Cap Rate would be if someone purchased the Property from us.
So, we just added in an additional Cap Rate calculation. We are calling it Cap Rate If Sold and it is calculated as:
Capitalization Rate If Sold =
Current Net Operating Income ÷ Current Property Value
This will allow users of the Planner™ to be able to see the Cap Rate if they had sold the Property to someone else or the Cap Rate if they had to buy that Property again today for full retail value.
This new Chart is available for all Scenarios run from now on as a chart under Properties.
The previous Capitalization Rate (based on original Purchase Price), might have looked like this:
However, here are two example Charts showing this new Capitalization Rate If Sold.
If you are interested in learning more about Capitalization Rate, consider these additional resources.