Those who invest in real estate via income-producing properties need to have a method to determine the value of a property they’re considering buying. You can formulate a value by using other properties’ net operating income and by comparable properties recent sold prices. The capitalization rate is determined and then applied to the property in question to determine current market value based on income. This is a great way to make comparisons of similar properties, as all expenses are considered. When two properties seem just alike, and one costs more, it could be because it is generating more income or has lower expenses.
- Get the recent sold price of an income property, such as an apartment complex.
Example: Ten-unit apartment project sold for $700,000.
- For that same apartment project, determine the net operating income. All operating expenses are subtracted, but not the mortgage. So, this calculation values the property as if you paid cash for it.
Example: The rental income after expenses (net) is $45,000
- Divide the net operating income by the sale price to get cap rate.
Example: $45,000 / $700,000 = .06 or 6% (The Capitalization Rate)
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For more information on the listings on our website or to discuss your options and what would be the best course of action for you, contact us at
8429 White Oak Ave.
Rancho Cucamonga, CA 91730
Direct: (714) 269-9072