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Advanced Investing: Understanding Cap Rates

In Commercial Real Estate, one of the most commonly used terms is that of a Cap Rate. It alludes to a return generated by a Commercial Property, and is widely used to calculate its return. It is absolutely essential for investors to understand the concept of Cap Rates, to understand for themselves how Real Estate asset managers deliver rental income through property management, and more importantly, how Cap Rates affect a property’s value at acquisition and disposal.

What is a Cap Rate?

A Cap Rate is one of the most simple and reliable ways to check income potential of a property. In simple terms, it is an equation which shows how much an investor stands to make or lose from the asset in question. 

Why is it important?

A Cap Rate is important when deciding whether or not to invest in an income generating property. It helps determine the net operating income (NOI) of the property and its relationship to the price of the asset. In simple terms, a Cap Rate determines how good the returns are and if the property is valued appropriately.

The Cap Rate method can be used to evaluate the following types of real estate:

  • Multifamily residential real estate
  • Commercial real estate
  • Industrial real estate

At DMCC Holdings, we do all the heavy lifting so our investors do not have to. When it comes to evaluating markets and finding the best returns for our investors, we are always ahead of the curve. This is why our latest offering, the DMCC Performance Fund, takes advantage of Florida’s robust commercial real estate sector to invest in medical, retail and office properties to deliver stability and excellence. One of the primary reasons why we chose Florida for this fund is exactly for the reasons highlighted in this post, its cap rates. Some key markets in Florida such as Orlando and Tampa are known to have high cap rates, which allows us to find the best income generating assets for our investors.

To learn more, please get in touch with us today at investors@dmccholdings.com.


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