Tuesday, April 10, 2007
Rental House Cap Rates
What is the cap rate on your rental house? Annual income less expenses over current market value, right? The "less expenses" part is the nebulous part of the analysis. Needed items to include are major capital improvements that don't happen yearly. Roof replacements, new kitchens, bathroom remodels, landscaping, painting - all of these should be prorated every year to give a more fair cap rate. Don't be surprised if you get a 2.3% cap rate as I just did on my rental house. So, does that 4% cap rate apartment building look better? Maybe... That's another discussion.