How To Increase Cap Rate Of Real Estate Investment

There are several steps to increase cap rate of real estate investment. Real estate capitalization rates are designed to measure the rate of return earned from a real estate investment property. Investors frequently use these figures to compare similar properties throughout the market. Since cap rates are directly linked cash returns, investors are constantly looking for the best ways to increase their own value. As a real estate investor yourself, you should understand how to maximize your capitalization rate, and in turn, your return on interest. Read on and learn how to increase cap rate of real estate investment.

Calculate Capitalization Rate

First off, calculate your current value to increase capitalization rate for your real estate investment. To arrive at your current cap rate, divide net operating income by current market value. Net operating income (NOI) is your expected annual income from your real estate holdings. This can be calculated by deducting gross income from property management expenses. To calculate the current market value, on the other hand, compare the worth of your property against other prevailing real estate assets. This process is crucial to conduct, even if you are starting with limited capital. Definitely, calculate your current worth to increase capitalization rate for your real estate investment and maximize ROI.

Upgrade Your Building

Next, upgrade your building to increase cap rate of real estate investment. Cap rates can differ depending on whether you invested in a class A, B, or C real estate property. Typically, Class A buildings are facilities with higher quality, excellent conditions, and prime locations. Class C real estate properties, on the other hand, are older and often located in less-desirable locations. Of course, class B properties lay in between the quality of class A and C real estate properties. Therefore, you should upgrade your real estate property or invest in a higher classed building to maximize your returns. If you are in a Class C building for example, consider the prospective of moving to a Class B or A facility. Or, think about making strategic upgrades to reclassify your building in the future. Certainly, upgrade your building to increase your capitalization rate of your real estate investment.

Decrease Your Property’s Vacancy Rate

Then, decrease your property’s vacancy rate to increase cap rate of real estate investments. When real estate investments are vacant, they run the risk of losing money. Therefore, focus on filling units and keeping your vacancy rate as low as possible. With this approach, you can maximize rent collections throughout the year. Keep in mind, achieving a 0% vacancy rate is not always feasible. That being said, you may want to set a standard benchmark rate to monitor. Certainly, this is one of the most vital property manager roles to maintain your real estate investment. Definitely, lower your property’s vacancy rate to increase cap rate of real estate investments.

Increase Income Growth Rate

In addition, increase your income levels and growth to increase cap rate of real estate investments. You can raise tenant leases to increase monthly income and cash flow from your investments. This will help you increase your NOI, and in turn, your average capitalization rate. To do so, prepare an anticipated rent growth contract agreement for your tenants. This way, you can charge yearly rent escalations without dispute. With this structure in place, it will be easy to grow your cap rate, stay ahead of inflation, and maximize your growth potential. Surely, increase your income and monthly cash flow to increase cap rate of real estate property investments.

Reduce Utility Expenses

Of course, reduce utility expenses to increase the overall cap rate of your real estate investment. Typically, utility expenses are lowered by passing these fees on to your tenants. By eliminating utility payments, you can save thousands of dollars annually and significantly increase your capitalization rate. Needless to say, this is a great cost saving tip to maximize capital for real estate investors.  Certainly, the increase in cap rate can be attributed to multiple utility-related factors. This includes your annual billing and collection rate. After all, the higher these numbers are, the stronger your cap rate will be. To effectively maximize these figures, you’ll need a sophisticated utility expense management system, along with well-defined strategies. Surely, reduce your utility expenses to increase cap rate of your real estate building investments.

There are several steps to increase cap rate of real estate investment. First off, calculate your current capitalization rate. Once you have done so,upgrade your building to a Class A or Class B space. If this option doesn’t work, try decreasing the current vacancy rate by filling more units throughout your investment property. Of course, you can always try to maximize your income growth rate as well. Plus, many successful investors have reduced utility expenses to grow their capitalization rate values significantly. Follow the points highlighted above to learn how to increase cap rate of real estate investment.