As with any investment, everyone wants to know roughly how long it will be for them to earn their initial back, otherwise known as cap rate. It’s a term that is widely used in the real estate investing world and the higher it goes the better. Usually, when discussing the cap rate, investors are dealing with a multi-family project or commercial building, but what about rental homes? What’s a good cap rate for an investment property?
No two rental properties are the same, and there is no blanket answer for cap rate. To accurately calculate the cap rate of your investment property one must consider a multitude of external factors as well as the home itself.
Where the property is located will have a big say in how lucrative your investment will be. As they say, “in real estate, location is everything.” How strong is the rental market where you are looking to purchase a rental home? Typically, large metro markets with great universities and younger population make for prime rental home locations. By knowing where you want to purchase a rental home investment property you can begin to see the bigger picture. How much will the property cost in your chosen market? What’s the unemployment rate in the area? Median househo...