Quick question on understanding CAP Rate


#1

When arriving at the “Net Income” portion (top number of fraction) of the cap rate, is the cost of the monthly loan payment figured in to this number?

Example:
Yearly Income = $100,000

  • Cost to operate = $40,000 (summarized for utilities, upkeep, salary, taxes, etc)
    = $60,000
  • $30,000 Loan Repayment at $2500 / Month
    = $30,000 NET

So, for CAP Rate top number, do I use $60K or $30K?
Thanks,
Michael


#2

Cap rates are calculated on Net Opetating Inome (NOI) which is all income less operating expenses such as utilities management etc.
Debt service is not included in NOI