Posted by j cowan on January 23, 2002 at 07:02:49:
Cap rates are used to capitalize income streams. The type of math that Ed was using is simply known as IRV, income = cap rate multiplied by value. You can manipulate this formula to solve for any of the variables. Also, you can find out what type of cap rates are being used in your area by calling a local real estate appraiser, property manager, or broker. It also is important to note that investment value (the price that you can pay and still make a profit), and market value are rarely the same, so It is perhaps more valid that you derive your own cap rate based the rate of return you desire, and the risk associated with this investment. Good Luck!