- Please refer to the bottom section of the page for the ROI explanation and the comparison between ROI and Cap Rate.
- Property taxes are determined by the local municipality and may change over time.
- Ground rent (land tax) may not apply to every property. This is clarified during the purchase process. If applicable, it can be paid annually or eliminated through a one-time lump-sum payment.
- Insurance premiums are determined by independent insurance providers. Costs may vary depending on coverage options and deductibles.
- Property licenses must be renewed by paying the required municipal registration fees.
- Rental licenses are renewed every 2 years.
- Lead-based paint certification must be renewed with each tenant change. - This payment represents interest-only payments and is made on a monthly basis.
- The stated amount represents an estimated renovation cost and may vary depending on the current condition of the property. This amount covers the minimum renovations required to obtain a municipal rental license and includes a 1-year maintenance warranty and a 5-year roof warranty. These warranties are activated upon execution of the Affidavit of Completion Agreement.
Cap Rate vs. ROI:
Understanding Key Metrics for Real Estate Investors.
Understanding the difference between Cap Rate and ROI is crucial for real estate investors. Cap Rate measures the potential return based on the net operating income and property value, while ROI calculates the actual return over time, including debt service.
Cap Rate vs ROI
Comparison
(Cap Rate vs ROI)
Comparison
- Cap Rate shows the current or potential return from an income producing property.
- ROI shows the return on investment over a certain period.
- Both metrics are essential for making informed investment decisions.
(Return on Investment)
ROI
- Calculates the actual return over time, including debt service.
- Formula: ROI = Annual Return / Total Investment.
- Higher ROI indicates a better investment, but leverage should be used cautiously.
(Capitilization Rate)
Cap Rate
- Measures potential return based on net operating income (NOI) and property value.
- Used to compare similar properties in the same market.
- Formula: Cap Rate = NOI / Property Value.
- Higher cap rate indicates a better investment, but an unusually high cap rate can be a red flag.
Cap Rate vs ROI
Comparison
(Return on Investment)
ROI
- Calculates the actual return over time, including debt service.
- Formula: ROI = Annual Return / Total Investment.
- Higher ROI indicates a better investment, but leverage should be used cautiously.
(Cap Rate vs ROI)
Comparison
- Cap Rate shows the current or potential return from an income producing property.
- ROI shows the return on investment over a certain period.
- Both metrics are essential for making informed investment decisions.
(Capitilization Rate)
Cap Rate
- Measures potential return based on net operating income (NOI) and property value.
- Used to compare similar properties in the same market.
- Formula: Cap Rate = NOI / Property Value.
- Higher cap rate indicates a better investment, but an unusually high cap rate can be a red flag.
This example highlights the distinction between Return on Investment (ROI) and Capitalization Rate
(Cap Rate) when a property is purchased outright using CASH
This example highlights the distinction between Return on Investment (ROI) and Capitalization Rate
(Cap Rate) when a property is purchased outright using LOAN
Disclaimers
Status info and insurance costs are estimates.
The table on the next page shows that neighborhood classification is determined by the regions in which we sell.
The property tax is the current amount determined by the municipality.
The calculation of Roi and Cap Rate may vary due to these variants.
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