Millbrae Investment Properties Real Estate Agent Wayne Gomes Explains How Cap Rates Relate to Property Values Today

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The “Dear Abbey of Real Estate” says when capitalization rates move higher, they indicate a good time to buy.

REALTOR® Wayne Gomes offers expert real estate advice

When cap rates are rising, as they are now, buyers can get better returns on their investments

According to Millbrae real estate agent Wayne Gomes, many people are not familiar with the term “cap rate” (short for capitalization rate). The cap rate is the annual net income realized by a property owner divided by the purchase price. For example, if a buyer purchases investment property / commercial real estate for $3,000,000 and the net rental income for the property is $180,000 annually, the cap rate is 6% [$180,000/$3,000,000]. Cap rates are always calculated as if the buyer had paid cash for the property, even though most investment real estate and commercial real estate is purchased with loans. Gomes has observed the cap rate for Peninsula investment properties rising recently, indicating that now is a good time for investors to purchase property.

“When cap rates are rising, as they are now, buyers can get better returns on their investments,” says Millbrae real estate agent Wayne Gomes. He explains that a rise in cap rates means property values are moving down, which is what market trends are indicating in today’s economy, in a gradual fashion. Gomes recommends securing a property soon, explaining, “One never knows when the cap rate will turn the other way, and when it does, it means sales prices are inching higher.”

Gomes says that while market trends are important, they are just one of the factors that affect a property’s cap rate. Cap rates also vary with the amount of risk investors are taking on from the property’s tenants. The risk to a buyer is very low if a chain store with a corporate guaranty is their tenant, whereas a local mom-and-pop business runs a higher risk of missing their rent payment or going out of business. “The cap rate for a national brand tenant, like a Walgreens or an Apple Store, will be lower, as there is little risk. The cap rate for the mom-and-pop tenant is higher,” says Gomes.

Locations are also key with cap rates: the better the location, the greater chance the tenant will succeed. The cap rate can be a useful and telling indicator of a property’s value, but there are many factors that influence the cap rate. Gomes recommends consulting with a professional investment property agent to analyze how various factors are influencing the cap rate on a given property.

With over thirty years of experience under his belt, Wayne Gomes has learned the ins and outs of real estate after successfully selling homes, condos, apartment buildings and commercial real estate which include retail and industrial properties since 1978. Located in the heart of Burlingame, Wayne also serves Millbrae, San Bruno, as well as all peninsula communities ranging from San Francisco to Redwood City.

For precise information regarding cap rates and how they are currently affecting property values, or inquiries regarding buying or selling a home, apartment building, or investment property, contact Wayne Gomes, Broker Associate at Coldwell Banker at (650) 288-0061. To learn more about Wayne Gomes and his expertise, visit his website at http://www.waynegomes.com or connect on Facebook at http://www.facebook.com/waynegomes2.

About Millbrae REALTOR® Wayne Gomes
With over thirty years of experience under his belt, Wayne Gomes has learned the ins and outs of real estate after successfully selling homes, condos, apartment buildings and commercial real estate, which include retail and industrial properties, since 1978. Located in the heart of Burlingame, Wayne helps people buy and sell real estate in Burlingame, San Bruno, Millbrae, and all other Peninsula communities ranging from San Francisco to Redwood City.

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