As a real estate investor, it's important to understand the concept of a capitalization rate, also known as a "cap rate." This metric is frequently used when evaluating potential investment properties and helps determine the potential return on investment.
To calculate the cap rate, you divide the property's expected income by its purchase price.
In the Boston, MA real estate market, the average cap rate for investment properties is typically between 3-6%. However, it's important to note that cap rates can vary depending on the property's location, condition, and other factors.
A higher cap rate indicates a higher potential return on investment, while a lower cap rate suggests a lower potential return. It's important to consider other factors in addition to the cap rate, such as the property's condition, location, and potential for appreciation when making a real estate investment decision.
Understanding the cap rate can help you make informed decisions when considering purchasing an investment property and can help you gauge the potential profitability of the property.