Is a higher or lower cap rate better?

Typically, buyers want a high cap rate, meaning the purchase price is relatively low in comparison to the NOI. However, a higher cap rate typically means more risk and a lower cap rate represents lower risk.Click to see full answer. Also to know is, are lower cap rates better?Investors (buyers) want to have a high cap rate, meaning the value (or purchase price) of the property is low. Conversely, landlords (sellers) want to see a low cap rate because the selling price is high. Even though Property A has a higher net operating income (NOI), the interest is higher.Additionally, why is a lower cap rate better? Using Cap Rate to Measure Risk Using cap rate allows you to compare the risk of one property or market to another. In theory, a higher cap rate means a higher risk investment. A lower cap rate means an investment is less risky. Keeping this in consideration, what is considered a good cap rate? Generally speaking, to answer the question “what is a good cap rate:” a cap rate that falls between 4 percent and 12 percent is typical and considered to be a good cap rate. However, it does depend on the demand, the available inventory in the area and the specific type of property.What does 7.5% cap rate mean?For example, if an investment property costs $1 million dollars and it generates $75,000 of NOI (net operating income) a year, then it’s a 7.5 percent CAP rate. Usually different CAP rates represent different levels of risk. Low CAP rates imply lower risk, higher CAP rates imply higher risk.

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