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If your idea of the perfect holiday is to explore the mysterious pyramids of Egypt and discover its ancient culture, or relax on a white powdery sand beach and dive in amazingly clear waters, then you have to visit Hurghada. The renowned Red Sea and magical Sinai Desert are just two good reasons as to why Egypt should be at the top of your list of places to visit.

Definitely one of Egypt’s most popular Red Sea resorts, Hurghada is popular with travelers, tourists, and the Egyptians, all drawn here by the same things, the countries fantastic weather, sparkling clear seas and first-rate scuba diving opportunities. There is a lot in Brazil that will fascinate and please its visitors, whether it is the perfect climate, a good exchange rate, amazing scenery, the long stretches of sandy white beaches, or the welcoming attitude of the Brazilians and party atmospheres of the cities. These are just some of the reasons why those looking for a home are keen to invest in property here. Brazil is now one of the leading developing economies owing to its supply of natural resources and a good understanding of its potential to become an international top tourist destination.

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One of the most misunderstood, but important, terms in real estate investing is the Capitalization Rate or cap rate for short. This key metric is at the heart of all income property investments and allows investors to compare multiple properties to one another by taking into account their expense load. Unlike the GRM which only accounts for a property’s Purchase Price and Gross Scheduled Income (GSI), the CAP Rate also accounts for a property’s expenses, with consideration for operational efficiencies or mismanagement as the case may be.

CAP Rates are basically the savings rate or yield of a real estate investment in which you pay all cash. For example, a 10% CAP property would yield a 10% cash-on-cash return if you purchased it with cash and no debt. You calculate a property’s CAP rate by simply dividing the Purchase Price by the Net Operating Income (NOI).

When calculating a CAP rate, it’s important to properly account for expenses. Since your NOI is calculated by subtracting your expenses from your GSI, understating expenses will overstate your NOI and thus your CAP rate, making the investment appear better than it truly is. The key is to make sure that you verify as many actual expenses as possible (taxes, utilities, management, etc.) and predict others as realistically as possible (maintenance, reserves, etc.). Your goal should be to arrive at a realistic CAP rate for the investment during your Due Diligence period so you can determine whether or not to move forward with the purchase.

Continue reading ‘Real Estate Investment Training – Understanding CAP Rates’ »

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