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Cap Rate: Everything You Need to Know About This Commercial Real Estate Metric

What exactly is a real estate cap rate?

The capitalization rate, or cap rate, is one of the tools used to value commercial real estate properties.  Other methods include price per square foot, comparable sales, and the “cost approach”, where one estimates the cost of reproducing the subject property.  The cap rate, however, is arguably the most common property value assessment metric.  A property’s cap rate is the ratio of net operating income (NOI) to the property’s market value. Formulaically, one could define cap rate as the following:

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How to Eliminate Endless Versions of Excel-Built Financial Models

There’s a time and a place for Excel. For investors who need to quickly analyze with a bit more sophistication than on the back of a napkin, it works. Excel is also useful for people tracking data, or for people who want to create simple charts to use in a presentation.

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IRR: How To Calculate IRR in Commercial Real Estate Financial Modeling

IRR, or the internal rate of return, is a good thing to get familiar with if you're interested in measuring investment performance in commercial real estate. Even though IRR is commonly used throughout the investment and real estate industries, it is one of the most widely misunderstood terms around.

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