Short explanatory clip by Donna Genie describing what a capitalization (cap) rate is and how to calculate it for real estate (campground) investments. She defines cap rate as annual net operating income divided by the sales price and gives a worked example: $100,000 NOI divided by $1,000,000 price = 10% cap rate. She also states that higher cap rates are preferable ("up is better").
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 better.
