Before FED Bernanke and Central Banks manipulated interest rates, the cap rate was about 7%.
Bill Rothe is probably getting a 4.3% or so cap rate on his San Francisco apartment.
Contrast someone who buys into a richly priced market offering only a 3% cap rate.
So that level is about where your home's cap rate should be in the best circumstances.
The lower the cap rate, the more an investor has paid for a future stream of earnings.
The average cap rate for apartments nationally was 6.1% in the first quarter, according to Real Capital Analytics.
Beaky would be buying at a 4% cap rate--a modest cool-off in the apartment market could fray Beakey's finances.
If Microsoft were a building, you'd say that its cap rate is 2.2%.
Thus, the race would be between the pace at which rental rates increase and the compression of cap rate spreads.
In New York (cap rate: 7% ), for instance, the rents are astronomical because of its density and renewed cachet.
Up the coast in Boston (cap rate: 2% ), however, the rents aren't that crazy, which makes a lease a better deal.
What's nice about a cap rate is that you don't have to guess at what housing prices will do in the coming year.
Pei building on East 30th Street in late 1999, we calculated they were getting an 8.3% cap rate (FORBES, Nov. 29, 1999).
The full year acquisitions were done at an average cap rate of 7.22% with a weighted average lease term of just over 14.5 years.
Think of this cap rate as the dividend yield on your investment, comparable to the dividend you get on a real estate investment trust.
That boosts the cap rate to 8.7%, making renting more tempting.
However, the average cap rate spread over the 10 year treasury yield has been 360 bps during that period, which compares to 430 bps today.
Say you buy a condo cheap enough to pocket a 7% cap rate--that is, you're getting a 7% net rental return by acting as your own landlord.
At an implied cap rate of 6%, REITs are trading at the low end of the historical 5% to 10% range reported by the CCIM Institute in Chicago.
If your cap rate is 8% you could, of course, wind up with a real return well below that-if a tenant trashes the place or if the house is near a city with a weak economy.
If the home you wish to buy has an implied cap rate that is equal to or higher than the return you think you can safely garner in stocks or bonds, it probably makes sense to go ahead and buy.
The better question is whether extending a zero cap gains rate to higher-income (but not super- high-income) households would encourage more investment in the short run.
FORBES: Mitt Romney Slides Left Of GOP Orthodoxy On Capital Gains Taxes
This confused even his own party allies, such as finance committee chairman Lloyd Bentsen, who assumed that a newly elected Republican president who hailed from the Eastern establishment would be permitted a cap gains rate cut as a matter of course.
We'll also see lenders getting round the interest-rate cap and imposing charges in other ways.
BBC: NEWS | Programmes | Moneybox | Interest rates: Does a cap fit?
Montana voters easily approved the ballot measure to cap the interest rate that payday and other consumer lenders may charge.
FORBES: Montana voters approve interest-rate cap on small loans
The obvious policy response is intervention to cap the sterling rate, build up foreign-exchange reserves, and offset the monetary effects by issuing sterling debt.
It wants Congress to impose a national interest rate cap of 10% on credit cards and other types of consumer loans and to cap rates at 6% for veterans.
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