Cap rate is a term that you will often hear investors use when evaluating their expected return on an investment, in this case, a real estate investment.
Cap rate stands for “capitalization rate” and it’s calculated by dividing an investment property’s net operating income by its present value.
The net operating income generally refers to the rent that is generated by the property minus any expenses needed to run the property. These expenses include maintenance, taxes, and utilities, but do not include any financing or purchasing costs.
This represents the challenge when strictly using cap rates to evaluate a real estate investment. The formula doesn’t incorporate either leverage or property appreciation into the equation, which are two of the biggest advantages to investing in real estate.
Having said that, understanding and utilizing cap rates as a tool when looking at real estate investments is important, especially for value-based investors as opposed to growth-focused investors. It’s also useful when comparing different investment options to each other.
So what is a good cap rate?
Simply put, a low cap rate means less risk, a higher cap rate means more risk.
Having said that, a lower cap rate also means a lower return on your capital.
Typically, residential real estate will have a lower cap rate than commercial real estate. Residential tends to be less risky because people need a place to live, but in turn, the rental rates are typically much lower than commercial.
Likewise, large cities like Toronto tend to have lower cap rates than smaller areas like Waterloo. The reason for this is that large cities tend to offer less price fluctuations making them less risky. On the flip side, the lower purchase prices in smaller areas tend to give them higher return on capital.
Toronto is one of the most stable real estate markets in the world, and as such our cap rates are relatively low – meaning the risk is low, but the return based strictly on rental income is also quite low.
For reference, our cap rates in Toronto come in at around: 2 – 2.5% for condos, 3.5% for houses, and 4 – 6% for commercial properties.
Keep in mind, that while cap rates in a place like Calgary for instance may be 1 or 2% higher than in Toronto, the overall market in Calgary has shown much lower price appreciation. This means that while the return based on rental income may be stronger in Calgary, the overall investment return has been much stronger in Toronto over the past several years.
In summary, the cap rate is an important tool that you can use to evaluate a property strictly based on its risk and its income potential. It doesn’t take into account leverage, property appreciation, or even any potential value that can be added to a property.
One of the LARGEST condos ever to come on the market downtown, this is a once in a lifetime to own your estate in the sky! Panoramic views greet you effortlessly each morning from every room of this expansive luxury estate in the sky. The floor to ceiling windows meet the disappearing balcony doors to draw ones eyes toward the Coronado Island, Point Loma, Mexico, Pacific Ocean and the world beyond. Sunsets, harbor and city lights invite you to pause and soak in the day. The gala room with incredible acoustics can comfortably accommodate over 50 of your guests to a seated private concert. From the wide built in desk of your private corner office, gaze out into the bustling city and beyond. Energize yourself in the privacy of your own home gym, equipped with a floor to ceiling climbing wall and big enough to accommodate weight machines, Pilates equipment, treadmill and so much more. Large retreating balcony doors allow for the fresh ocean breeze to flow in and cool you down as you exercise and meditate towards a healthy body and mind. The modern sleek lines of the interior, opaque glass walls, exposed steel beams and white marble counters blend seamlessly with natural elements of the beautifully reclaimed Indonesian teak floors and the spotted birch cabinets and doors. Wide open expansive gallery walls are an art collector’s dream. The Meridian is a luxury residence that offers 6 star amenities including valet parking for you and your guest, doorman and around the clock security. Live life without compromise!
Listed by Berkshire Hathaway HomeServices California Properties
Price: $11,950,000 / Beds: 5 / Baths: 6.5 / Sq Ft: 8,400
Coastal living meets Southern living in this fabulous waterfront retreat! The flawless design provides a bright and airy coastal ambiance with remarkable architectural details and craftsmanship. The first floor is designed for entertaining with open concept living spaces that open to the outdoors. There is an expansive island, two sinks, six burner gas cooktop, pot filler, a custom hood and stylish champagne gold hardware. There is a great homeschooling/office space that adjoins the kitchen.
As you would expect, the master offers beautiful water views, a fabulous bath and oversized closet with custom built-ins. Upstairs, two guest bedrooms open to a large playroom/den. The boat dock with lift is where the outdoor festivities begin with boating, fishing, or kayaking. The dock offers a lift to accommodate a large boat. Retreat to the 400 square foot porch complete with brick pavers and a brick wood burning fireplace.
Presented by Berkshire Hathaway HomeServices PenFed Realty
Price: $3,900,000 / Beds: 4 / Baths: 3.5 / Sq Ft: 4,796
Step into this breathtaking custom lake view home by architect John Anderson. Perfect downsize or single level living opportunity! Gracious floorplan with large rooms and vaulted cedar ceilings. Designed and remodeled for today’s living with portrait lighting and luxury finishes at every turn. Gourmet kitchen opens to the dining and family rooms, perfect for gatherings. Serene owner’s suite with lake views. Incredible outdoor spaces, sit by the deck fireplace and enjoy the sunset overlooking the lake. Lush, low maintenance landscaping with extensive garden lighting surrounds the property. Located in the Lochleven neighborhood, close to downtown Bellevue and Clyde Beach Park on Meydenbauer Bay.
Presented by Berkshire Hathaway HomeServices Northwest Real Estate
Price: $3,600,000 / Beds: 3 / Baths: 2.5 / Sq Ft: 2650
Each Executive Summary Report is for a specific TRREB zone combination and includes a map of the included zones and a 4 page summary for each property type (detached, semi-detached, townhomes, condos)
The Information / statistics you can find in each Executive Summary Report include:
Similar to last month, rather than trying to cover all stats, we’ve focused on sales, new listings, and inventory. Why? Given the extremely low number of listings currently on the market, it may set the stage for a very interesting (and competitive) fall market when (or if) it finally gets started!
For a more comprehensive analysis including average prices, please refer to the 100+ TRREB reports section for direct access to detailed reports on over 38 different TRREB combinations, or click on the above section to view the accompanying slides & video.
10 Year History of Sales and New Listings
While August 2021 sales were higher than the 5-year and 10-year August averages, we did see a reduction from August 2021 to August 2020. This was primarily driven by an abnormally busy summer in 2020 as the market continued to emerge from the COVID related pause during Q2/2020.
416 Sales / New Listing Details
There were 3,003 August sales across all property types within the “416” TRREB zones. Down -10% vs. August 2020, but up +9% vs. the 5-year August average and also up +9% vs. the 10-year August average.
While sales were down vs. July (which is typic given seasonality), the sales-to-new listings ratio (“SNLR”) tightened in the month rising from 64% in July to 71% in August signifying tightening market conditions (i.e., demand > supply).
The detached market SNLR climbed from 72% in July to 74% in August whereas the condo SNLR climbed from 59% in July to 69% in August.
“416” TRREB Zones – August vs. July – 10 yr History of Sales & New Listings
905 Sales / New Listing Details
“905” TRREB Zones – August vs. July – 10 yr History of Sales & New Listings
Detached Inventory At or Near Historically Low Levels!
“416” Detached Inventory
“905” Detached Inventory
This dynamic of record low inventory was not exclusive to detached properties. In fact, the 905 TRREB zones posted record low active listings for an August across all major property types (detached, semi-detached, townhomes, and condos). Within the 416, detached, semi-detached, and townhomes posted the second lowest active listings on record (August 2016 was lowest), while condo active listings remained relatively in line with their 5-year July average — although this may be short lived as listings are dropping quickly.
In this month’s mortgage update video, we explore some of the mortgage and housing related items outlined across the political parties’ platforms. A sample of these items include:
Variable Rate Forecast – as variable rates are linked to a Lenders’/Banks’ prime lending rate, any interest rate movement by the Bank of Canada typically results in an immediate change to variable rates. Based on the most recent outlook, the Bank of Canada has signaled the earliest it would increase its rate would be “the second half of 2022”.
Fixed Rate Forecast – 5-year fixed rates typically follow the Government of Canada 5-year Bond Yields which is the market’s view/prediction of where interest rates will be in the future. After an initial spike in February 2021, bond yields have settled into a range between 0.75 to 1.00. Fixed-rate mortgages have moved in lockstep and also look to have settled in at their current levels outlined in the above rate chart. Based on the current outlook, we do not anticipate any significant changes (up or down) in the near term.
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NASSAU, Bahamas–(BUSINESS WIRE)–Berkshire Hathaway HomeServices, one of the world’s fastest-growing residential real estate brokerage franchise networks, is pleased to announce that LX Bahamas Luxury Realty Group is now part of its global brokerage network and will operate as Berkshire Hathaway HomeServices Bahamas Real Estate. The company will add one office and 19 agents and will service the islands of New Providence, Paradise Island, Eleuthera and Exuma.
“Bernard and his team have built an incredible reputation in their market. To have a team that shares our brand’s values of Integrity, Trust, Stability and Longevity, gives me great pleasure in welcoming them to our global network”Christy Budnick, CEO of Berkshire Hathaway HomeServices
The Bahamas real estate market has seen a massive surge in sales so far, this year. Nearly $400 million worth of property was sold or went under contract in the first quarter of 2021 and transactions nearly doubled compared to pre-COVID activities. The current surge partially is due to the already high demand to buy real estate on the island before the pandemic hit.
“We have assembled an elite team of experienced, top tier real estate agents and support staff to ensure unparalleled service and world-class results that represent the Berkshire Hathaway HomeServices brand,” said Jim Bernard, president of Berkshire Hathaway HomeServices Bahamas Real Estate. “It’s an honor to be a part of such a great network and we are excited about what the future holds as we take our brokerage to the next level.”
With their brand transition, Berkshire Hathaway HomeServices Bahamas Real Estate agents gain access to Berkshire Hathaway HomeServices’ active referral and relocation networks, and its “FOREVER Cloud” technology suite, a powerful source for lead generation, marketing support, social media, video production/distribution and more. Berkshire Hathaway HomeServices has aligned with best-in-class technology platforms to deliver world-class support to its network members far into the future.
Berkshire Hathaway HomeServices Bahamas Real Estate will also have full access to the recently unveiled, Real Estate I.Q. System. The System combines the Berkshire Hathaway HomeServices brand, marketing resources and technology with progressive education, training, coaching and consulting. The brand also provides global listing syndication, professional training and ongoing education and the exclusive Luxury Collection marketing program for premier listings. Its Prestige Magazine showcases network members’ premium listings with a strong lineup of feature stories covering topics that appeal to high-end real estate consumers.
“Bernard and his team have built an incredible reputation in their market. To have a team that shares our brand’s values of Integrity, Trust, Stability and Longevity, gives me great pleasure in welcoming them to our global network,” said Christy Budnick, CEO of Berkshire Hathaway HomeServices. “Their client-first approach to real estate, coupled with loyalty and fiduciary responsibility to the client creates the long-term success we are looking for.”
Gino Blefari, chairman of Berkshire Hathaway HomeServices, also welcomed the company to the network, “Berkshire Hathaway HomeServices Bahamas Real Estate is an important addition to our network. We are looking forward to assisting them on their mission of expanding throughout all the major islands in the Bahamas.”
©2020 BHH Affiliates, LLC. An independently owned and operated franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc.®