Are you looking for current cap rates to value investment real estate? There are three basic ways to find a cap rate for a property.

  1. One common way is through what's called market extraction. This involves observing cap rates from comparable properties that have sold in the marketplace and then using those cap rates to value the subject property. One problem with this approach is that it can cause investors to get caught up in real estate bubbles. Sometimes, over exuberance among buyers can produce irrational prices and this approach will lead new buyers to match those inflated valuations.
  2. Another method is to look at historical returns of comparable properties and to assume that the past returns should represent current return expectations. This involves looking at historical, unleveraged investment returns and then using that information to compute a cap rate. Past returns are adjusted to factor in current interest rates, construction quality, market liquidity and expected NOI (net operating income) growth.
  3. A final method is to simply ask other investors what returns they're looking for when investing in certain property types and then converting those return expectations into cap rates. Several real estate consulting firms perform investor surveys.

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