Cap Rate is rate determined by the sale price in relation to your NOI (Net Operating Income). After all bills, maintenance and mortgage is considered, the remaining “in the bank” money is your NOI. Simply divide your NOI by your purchase price. and convert to percentage. It’s been my experience over the past few years in this type of market, that 5% is what will give some positive cashflow. With the BoC rate increasing, this will reduce most Cap Rates if the prices don’t fall some. Each market is different too of course. In Toronto area even at 4% you’ll be putting some of your own money to cover all the carrying cost…BUT look at the return you’ll get in five years when you remortgage by putting in a few dollars per month.
Sure it is. I’ve sold many that produce an income each year. It’s not enough to live on, but enough to build a contingency fund over the years for future improvements. Mind you, if you have to put 20% or more down to buy this..are you also factoring in the lack of interest you could be earning on that dime in your overall math? I have a calculator you can play with to see if the ROI on your property is what you want or need. You can jump over on the dial pad to #4, or click here
Return of Investment is something we all consider on any purchase from RRSP, mutual funds or even the best quality sneakers to buy. Most times ROI is referring to money, but there’s so many intangibles it can be placed on as well.
I’m quoting my own definition from my calculator button – “To calculate your ROI rate it’s simply math by considering your annual gains related to your initial layout of cash when you close.” Don’t forget to include your transfer taxes, inspections, legal fees etc when considering your return.
Contact me by pressing 3 on my dial pad.