One of the interesting aspects of having that understanding of the concept is that if somebody doesn’t really understand what a cap rate means, it can lead to errors. In some cases, you might find the answer to be enlightening. So there’s very little consistency and I would encourage you that any time you see a concept being used by a sponsor and you’re not really sure exactly what it means, don’t hesitate to ask what he or she means by the idea. There may be actual definitions somewhere that are definitive of a concept but there’s no requirement for everybody to read and learn those concepts or those definitions.Ĭonsequently, people understand most concepts in real estate through the lens of their own personal experience and who it was that taught them or how they came to learn what the concept meant. There’s no centralized School of Real Estate. ![]() ![]() It’s consistent throughout real estate that the terms used have a general understanding in the market, but are in many cases understood differently by different people. But if you ask them to explain exactly how it is calculated and what goes into a cap rate calculation, you’ll get a lot of different responses. If you ask 10 brokers, ” what is a cap rate?” they might give you a basic idea of what it is. As much as it’s used, it always astonishes me how little cap rates are understood. I’ll tell you right now cape rates are probably one of the most used terms in real estate and yet one of the most misunderstood.
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