Use a calculator to reject weak deals quickly
A simplified screen can help compare several properties before spending time on detailed underwriting. Start with purchase price, realistic market rent and operating expenses.
What to include in operating expenses
Property taxes, insurance, maintenance, management, association expenses, utilities paid by the owner, vacancy assumptions and reserves can all affect the result.
What cap rate does not tell you
Cap rate does not include financing structure, income-tax effects, appreciation assumptions, major future capital expenditures or your personal return requirements.
Want to apply this to a real property?
Use the guide as a starting point, then discuss the specific property, neighborhood and objectives with the appropriate professionals.