I finally understood cap rates after a chat with a broker in Austin

I was looking at a small office building in Austin last month and kept getting confused by the cap rate numbers. The broker, Mark, sat me down and said, 'Think of it like this: a 7% cap rate means you get your money back in about 14 years, ignoring financing.' That simple comparison to a payback period just clicked for me. Has anyone else found a better way to explain cap rates to new investors?

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2 Comments

wyatt5135mo ago

My buddy in Dallas had a broker explain it with a pie chart, lol.

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ninaw885mo ago

A pie chart for that? Seriously?

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