Question

Given the following information, calculate the going-in capitalization rate for the specific property:

First-year NOI: $250,700;

Acquisition price: $4,250,000;

Equity investment: 30%;

Before-tax cash flow: $60,500.

Answer 1

Going-in capitalization rate also referred to as the initial yield is the capitalization rate calculate as the ratio of First Year Net Operating Income by Acquisition Price. It is a measure of investor’s return in the first year.

Going-in capitalization rate = First Year NOI/Acquisition Price
                                    = $250,700/$4,250,000
                         = 5.90% (approx)