Why CAP Rates remind me of Dating by David Seay CCIM of Seay Development in Charleston, South Carolina
Ahhh, the romance. Dating was quite a time in my life. I have found marriage to be an even more fulfilling experience personally, but any married (or divorced for that matter) person will tell you that you can’t predict what marriage is really going to be like until you experience it.
Since Charleston is the second most frequented destination wedding capital of the USA, let’s love it up with some CAP Rate reality.
According to my much loved CCIM Institute, A capitalization rate is the overall or non-financed return on a real estate investment, akin to the return on total assets in accounting terms.
A cap rate is calculated as a mathematical relationship between net operating income and an asset’s value. Most commonly cap rates are extracted from transactions of buyers and sellers competing in a marketplace; but they are related to the current state of capital markets as well as the future growth outlook.
So what is the operative work here? NON-FINANCED PEOPLE! That’s right, you can make a quick decision with a CAP Rate, but you need to understand how your financing structure is going to really come into the equation because once you are into the property, well… you are married to the property and debt can not only ruin a relationship, but it can ruin a return and wreck your financial life is you don’t know how to put it on a property the right way.
A word to the wise would be, truly understand your cash flow and how your debt structure is going to impact your internal investment perspective. Calculate acquisitions with an eye on conservative underwriting and make sure you pay attention to every expense that may hit your bottom line the day after closing.
Better to count the costs before you go because when the wedding guests go home, CAP Rate estimates won’t matter much at that point.
My clients and I would truly appreciate you viewing all our properties at http://www.seaydevelopment.idxbroker.com/idx/featured or at http://www.SeayDevelopment.com
A CCIM (Certified Commercial Investment Member) is a recognized expert in the commercial and investment real estate industry. The CCIM lapel pin is earned after successfully completing a designation process that ensures CCIMs are proficient not only in theory, but also in practice. This elite corps of CCIMs includes brokers, leasing professionals, investment counselors, asset managers, appraisers, corporate real estate executives, property managers, developers, institutional investors, commercial lenders, attorneys, bankers, and other allied professionals. A CCIM is part of a global commercial real estate network with members across North America and more than 30 countries. This professional network has enabled CCIM members to close thousands of transactions annually, representing more than $200 billion in value. As a result, the experts who possess the CCIM designation are an invaluable resource for commercial real estate owners, investors, and users.
CCIMs have completed a designation curriculum that covers essential CCIM skill sets including ethics, interest-based negotiation, financial analysis, market analysis, user decision analysis, and investment analysis for commercial investment real estate. CCIMs have completed a portfolio demonstrating the depth of their commercial real estate experience. Finally, they have demonstrated their proficiency in the CCIM skill sets by successfully completing a comprehensive examination. Only then is a designation candidate awarded the coveted CCIM pin, joining the ranks of highly skilled commercial and investment real estate experts.
More than 13,000 commercial real estate professionals have earned the designation. Currently, 3,000 professionals are pursuing their CCIM designation.