Capitalization rates are the backbone of static real estate investment analysis. Very simple to calculate and offer investors and instant method of understanding existing cash flow dynamics in relationship to value or purchase price.
This section outlines capitalization rates based upon weighted averages of blending debt costs with equity yields — otherwise known as Band-of-Investment Capitalization Rate “BOI”. The BOI is segregated according to types of lenders (e.g., Agency, Bank), as debt accounts for the largest part of the calculation.
Thereafter, The Real Estate Capital RateStack visually presents yields using stacking of investment risk profiles. These profiles are classified by safe, cautious and entrepreneurial zones.
Last but not least, Capitalization Rates by Property Type – 2000 to Present illustrates comparative yields over time.