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|
|7% to 8%||2||7.45%|
|6% to 7%||0||N/A|
|5% to 6%||1||5.56%|
|4% to 5%||23||4.30%|
|3% to 4%||25||3.51%|
|2% to 3%||17||2.68%|
|1% to 2%||0||N/A|
|0% to 1%||57||0.01%|
|Less Than Or Equal To 0%||57||- 0.01%|
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.
4138 Silverthorne Ct As An Investment
In the table below I'll be running some numbers on how 4138 Silverthorne Ct 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.
|Base Rent per Bedroom per Month||$300 - $400|
|# Bedrooms||× 2 =||$800|
|Subdivision Rent Premium (Shamrock West)||+ 0% =||$800|
|Home Age Rent Premium (built in 2002)||+ 5% =||$840|
|Home Price Rent Premium (asking $199,500)||+ 5% =||$880|
|Garage Rent Premium (1 garage spaces)||+ 4% =||$912|
|Square Foot Rent Premium (1,112 square feet)||+ 0% =||$912|
|Adjusted Base Rent||$912|
|Vacancy Rate at 5%||- $46 =||$866|
|Property Management at 10%||- $80 =||$786|
|Property Taxes at $748/year||- $62 =||$724|
|Hazard Insurance (estimated based on price alone)||- $83 =||$641|
|HOA at $86 monthly||- $86 =||$555|
|Owner Utilities ($150/vacancy)||- $8 =||$547|
|Maintenance Reserve at 10% (based on property age)||- $80 =||$467|
|Net Operating Income (NOI)||$467|
Let's now look at the Net Operating Income (NOI) for 4138 Silverthorne Ct at $467 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 4138 Silverthorne Ct
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 4138 Silverthorne Ct. It turns out be 2.81%.
Will A 20% Down Payment Buying 4138 Silverthorne Ct As A Real Estate Investor Give Me Positive Cash Flow?
If you put 20% down and purchased 4138 Silverthorne Ct, 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 4.625% 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 5.125% for those calculations.
Negative Cash Flow
With 20% down payment, you'd be borrowing $159,600 at 5.125% for 360 months. That would give you payments of $869.00 per month. That's a deferred down payment (my nice way of saying negative cash flow) of about $402 per month.