A short YouTube tutorial (Donna Genie) explaining what a capitalization rate (cap rate) is and how to compute it for campgrounds and other real estate. The speaker defines cap rate as annual net operating income divided by sales price, gives a numeric example (100,000 / 1,000,000 = 10%), and frames higher cap rates as better returns.
Is an 8 for a cap rate good? Well, there's a lot of confusion over what cap rate is, and how do I know if that's good or bad? Is it better to be higher or to be lower? Cap rates are used a lot in the campground world, and real estate, for that matter. They talk about how much money you'll get in return for your investment. A calculation of a return on investment Type Function first, let's define what a cap rate is. A cap rate is taking the net operating income that's provided by the property for a year and dividing it by its sales price. That is going to give you a percentage. So let's assume that's $100,000 and that park is for sale for $1 million. Take $100,000 divided by $1 million and that is 0.1 or a 10% cap rate. So 10 is good, really good. Down is worse. Up is.
