October 24, 2015 IBOMLLC Team

What Is A Capitalization Rate? Global Property Portal Explores Importance Of Cap Rates In Kenya

What Is A Capitalization Rate?

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Global property portal explores importance of cap rates in Kenya

In Kenya, the capitalization rate on real estate is at an all time high, as value property investments and income streams increase within the market.
But what does this mean? Lamudi Kenya explores how to determine the capitalization rate, what investors should consider, and why the cap rate of land is important.

The capitalization rate, more commonly known as cap rate, is the ratio of net operating income (NOI) to property asset value. It is a first-hand indicator of how much an investment is worth. If a property is listed for KES 1,000,000 and generates an NOI of KES 100,000, the cap rate would be 10 percent.

Put simply:

Cap rate = net operating income / Current market value (sales price) of the asset

So how can you work out the capitalization rate of your potential new property?

Determine the gross revenue

If the land is used for agriculture, the gross income will come predominantly from the annual cash return on crops or livestock. If the land is built upon and offers a home to tenants, the gross income will likely …read more

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