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Things to Know About Capitalization Rate in Real Estate Investment

Capitalization is the rate at which the investors aim to grow their investments. The capitalization can be either high or low. Both of these situations have their own advantages. And there is an assurance of a great return on investment. Take a look at the slideshow to know more about capitalization rate in real estate investment.

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Things to Know About Capitalization Rate in Real Estate Investment

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  1. THINGS TO KNOW ABOUT CAPITALIZATION RATE IN REAL ESTATE INVESTMENT

  2. Investing in real estate brings great returns on investment.

  3. Capitalization rate is not a metric of investment return.

  4. It is actually an indicator of market sentiment.

  5. Here are the things to know about capitalization rate in real estate.

  6. WHAT IS CAPITALIZATION RATE?

  7. Investors aim is to identify the rate at which they can grow their investments.

  8. All investors have parameters where at a certain point growth potential exceeds risks.

  9. This is when investors take action and decide to invest capital in properties.

  10. ADVANTAGES OF HIGHER CAPITALIZATION RATE

  11. Investors cannot buy a property whose value is equivalent to a 5% cap.

  12. No cash will flow at 5% cap & investors need some cash flow to hold on to the asset.

  13. Investors search for an asset where they can pay price equivalent to 5% cap.

  14. They can then improve it where their new income will represent a 7.5% cap.

  15. Thus, in the end, they will not only have cash flow but also will generate wealth.

  16. ADVANTAGES OF LOWER CAPITALIZATION RATE

  17. People who buy properties at 10% cap think that they are making a profit.

  18. However, people buying at low cap rates have already made all the money.

  19. Instead these investors are willing to pay a premium for safety.

  20. This is why they go to the market and invest their money in properties at 5% cap.

  21. T H A N K Y O U www.landwin.com

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