The San Jose Team
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San Jose Real Estate Investor Information


Capitalization Rate
Capital Gains Rates
Cash on Cash Returns

Capitalization Rate : Cap Rate

The Capitalization Rate or Cap Rate is a ratio used to estimate the value of San Jose income producing properties. The cap rate is the net operating income divided by the value or sales price of a property as a percentage. Investors, appraisers and lenders use a cap rate to estimate the right purchase price for different types of San Jose income producing properties. A market cap rate is determined by evaluating the financial data of similar properties which have recently sold in a specific market. A cap rate provides a better estimate of value than a market Gross Rent Multiplier could since the cap rate calculation utilizes much more of a property's financial detail. The GRM calculation only considers a property's gross rents and selling price. The Cap Rate calculations incorporates the property's selling price, vacancy amount, non rental income, gross rents, and operation expenses providing better targeted estimate of value.

When working with a San Jose seller or Silicon Valley real estate buyer for a particular piece of San Jose income property, the seller will be trying sell at the lowest cap rate possible / get the highest price for the property. The buyer at the same time will be trying to purchase the property at the highest cap rate / lowest price possible. The lower the selling price the higher the cap rate. The higher the selling price, the lower the cap rate.

San Jose real estate investors expect a larger return when investing in high risk income properties. The Cap rate may vary in different areas of San Jose for many reasons such as level of crime, desirability of location and general condition of an area. You would expect lower capitalization rates in newer or more desirable areas of San Jose and higher cap rates in less desirable areas due to the added risk. If net operating incomes are decreasing and capitalization rates are increasing over time in a given market place, property values will be declining. In the San Jose real estate market where net operating incomes are increasing and cap rates are declining over time for a given type of investment property such as office buildings, values will be generally increasing.

If you would like to find out what the cap rate is for a particular type of property in the Silicon Valley, check with us. We determine the cap rate value with recent sales of comparable properties.

The opportunity has never been more apparent for San Jose Commercial Property Investor.