The following shows the number of active properties for sale in Loveland grouped by Capitalization Rate. Capitalization Rate (also known as Cap Rate) is the return you'd expect to earn on the property if you purchased the property for cash and rented it out.

I am able to provide this data because I analyzed every new property for sale and every price changed property in the MLS priced below $350,000 for Capitalization Rate, Cash On Cash Return and Internal Rate of Return.

Capitalization Rate Number Active Properties Average Cap Rate For Range
> 25% 2 31.95%
20% to 25% 0 N/A
15% to 20% 0 N/A
14% to 15% 0 N/A
13% to 14% 0 N/A
12% to 13% 0 N/A
11% to 12% 0 N/A
10% to 11% 0 N/A
9% to 10% 0 N/A
8% to 9% 0 N/A
7% to 8% 1 7.57%
6% to 7% 0 N/A
5% to 6% 1 5.56%
4% to 5% 6 4.29%
3% to 4% 28 3.36%
2% to 3% 25 2.59%
1% to 2% 7 1.81%
0% to 1% 1 0.40%
Less Than Or Equal To 0% 0 N/A

Capitalization Rate Calculation Example

The following is an excerpt from a calculation I do for investor clients on all newly listed and new price change properties for sale. It walks you through--on a single property--how I calculate the Capitalization Rate that I use to create the tables above.

1344 E 1st St, Unit 1-3 As An Investment

In the table below I'll be running some numbers on how 1344 E 1st St, Unit 1-3 might be as an investment. If you're planning to buy this to live in, this information will largely be worthless to you. If you're a real estate investor, it may prove to be invaluable.

Description Amount
Base Rent per Bedroom per Month $300 - $400
# Bedrooms × 5 = $1,350
Subdivision Rent Premium (No Subdivision) + 0% = $1,350
Home Age Rent Premium (built in 1911) + 0% = $1,350
Home Price Rent Premium (asking $190,000) + 5% = $1,418
Garage Rent Premium (0 garage spaces) + 0% = $1,418
Square Foot Rent Premium (853 square feet) + 0% = $1,418
Adjusted Base Rent $1,418
Vacancy Rate at 5% - $71 = $1,347
Property Management at 10% - $135 = $1,212
Property Taxes at $985/year - $82 = $1,130
Hazard Insurance (estimated based on price alone) - $79 = $1,050
HOA at $0 - $0 = $1,050
Owner Utilities ($150/vacancy) - $8 = $1,043
Maintenance Reserve at 12% (based on property age) - $162 = $881
Net Operating Income (NOI) $881

Let's now look at the Net Operating Income (NOI) for 1344 E 1st St, Unit 1-3 at $881 per month and see if it can support purchasing this property at some of the more common down payments for real estate investors.

Capitalization Rate for 1344 E 1st St, Unit 1-3

If you take the Net Operating Income that I've calculated as a monthly figure, convert it to a yearly amount by multiplying by 12 and divide it by the purchase price you can determine the Cap Rate or the Capitalization Rate for 1344 E 1st St, Unit 1-3. It turns out be 5.56%.

Will A 20% Down Payment Buying 1344 E 1st St, Unit 1-3 As A Real Estate Investor Give Me Positive Cash Flow?

If you put 20% down and purchased 1344 E 1st St, Unit 1-3, would the Net Operating Income be enough to cover the mortgage payment?

Well, the interest rate we've been discussing for owner occupied properties is 3.375% but for an investor loan where the owner will not be occupying there is often a small premium on the interest rate so I will use an interest rate of 3.875% for those calculations.

Positive Cash Flow

With 20% down payment, you'd be borrowing $152,000 at 3.875% for 360 months. That would give you payments of $714.76 per month. That would give you a positive cash flow of about $166 per month using the automatic Net Operating Income calculation of $881.

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