What is a Capitalization Rate? - Real Estate Basics

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⏰ Timestamps ⏰:
0:00 Introduction
013 The two things in a cap rate
1:01 How to calculate NOI
3:49 Walking through an example deal

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ABOUT KEN:
Ken is the author of the bestselling books The ABC’s of Real Estate Investing, The Advanced Guide to Real Estate Investing, The ABC’s of Property Management, and has an upcoming book: "ABCs of Buying Rental Property: How You Can Achieve Financial Freedom in Five Years." Ken is a Rich Dad Advisor.

With over two decades of experience in real estate investing, Ken McElroy is passionate about sharing the good life by helping real estate investors grow and prosper. This channel is a place for Ken to discuss numerous topics connected to real estate investing, including finance, budgeting, the entrepreneur mindset, and creating passive income.

Ken offers a wealth of personal experiences, practical advice, success stories, and even some informative setbacks, all presented here to educate and inspire. Whether you’re a new or seasoned investor, the information and resources on this channel will set you on a path where you and your investments can thrive.

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[mrjprocks]

Thanks for the info!

What’s the reason why you want to buy high cap and sell low cap?

[beastincarnate]

If NOI increases cap rate also increases how can one sell at a lower cap rate!?

[fadidib]

Why when selling you want the cap rate to be lower?
Wouldn’t it look good for the buyer that the cap rate is high?

[bobbyflores]

This was a good video, explanation. It would be a bit better if you would have spoke more about the exit cap rate and how, why this gets lower...

[bobbarker]

Not so pro tip - If you see a cap rate as part of the marketing material for the property, it's probably wrong. I can't count how many times agents either knowingly or unknowingly misrepresent the number. Most of the time it's not taking all/any expenses into account.

[leibelcohen]

Ken - the last piece of advice you give here, “buy at a high CAP rate and sell at a low one” is great, but you left out one important question: HOW DO YOU DO THAT? Is it totally determined by the market (I.e. out of investors control)? If so, what does one do in today’s environment when (where I invest) we are setting CAP rates in the 4-5% range?

[secretbeach]

I like at 2:38 when he licks his finger before he “turns the page” like it’s really paper 😂

[BusinessTipsWithYulianna]

You inspired me actually to start my own channel.

[Freedomridingcompany]

Great and informative video. I subscribed and am interested in watching other videos. JP

[TheOpenCriticalmind]

Hi Ken, Does NOI already deducts the cost of interest payment?

[charleshopkins]

This is long overdue but Thanks for everything Ken! Been following you for the past month or so and you’ve helped me to gain the confidence to start my journey as an investor. (I’m in the process of buying my first rental property!) Thanks again for everything!

[duneme]

Fantastic Job Ken!
Great!
Thank You!

[haickelpadron]

how to declare a 3 unit building while living in one unit in the taxes

[kevinhawthorne]

Thank You for all of your videos that you did. I am enjoying all of them

Wow! Perfect lesson! If your master course is a lot like this, its definitely worth the money! I'll be checking it out.

[deltapromasterlauj]

Ken, I need some serious advice please. I’m looking into being a first time home buyer in California but currently we’ve all seen the housing market skyrocket in the past few years. I’m currently looking to purchase a home in central California (Sacramento-San Joaquin region) but extremely hesitant at these outrageous prices. For example, majority of 3 bedroom/2 bath home is currently going anywhere from $400-800k depending on location/neighborhood…….these same homes used to be $200-300k a few years ago……I definitely don’t want to buy this at the top when everything is about to crash all over again…..thank you for your time and advice/suggestions.

[craigshannon]

I understand that as far as property purchased for the purpose of rental income. How is property that is paid for and later converted to rental property calculated as far as cap rate is concerned?

[Walina]

Direct capitalization is used to value properties. Since you have the value why are you wasting time trying to calculate a cap rate? That is backwards.

[Mister.Doodler]

So is a 10 % cap rate a good benchmark to begin

[thorpower]

ken your the boss, thanks man, your vids are gold