More on cap rates

What does $1/mo increase in rent do to the value of your property?

At a cap rate of 6%, every $1/mo increase will mean a $200 increase in the price of your property. $12/yr X (1/0.06) = $200

For multi-unit properties, this is a huge amount. Imagine having a 100 unit building and being able to increase the rent in each unit $20/mo. $20/mo X 12mo/yr X 100 units X (1/0.06 cap) = $400,000 increase!

What if you have a 3% increase a year in rents in your property? 0.03/0.06 = 5% You can expect your property value to go up 5% a year if you have 3% rent increase in your leases. Assuming a 6% cap rate of course.

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