Interesting video on the "four square" method to calculate ROI on a rental

Here is a link to the post: https://capratecalculator.wordpress.com/2018/02/01/did-you-know-using-the-four-square-method-to-calculate-numbers-on-a-rental-property/


Another one related is this one :




"A quick description of Net Operating Income, Capitalization Rate, and Price - What they are, how they interact with each other, how to use them, etc. If I have made any mistakes, or omitted what seems like important relevant info then please message me or leave a comment. http://relevantproperties.com"

Someone said : I would add that the cap rate is not determined just by the area. It also depends on the quality of the tenant and terms of the lease. For example, if you have a bank as your tenant then it is unlikely they are going to default. The cap rate you use would be different if you had a new startup as your tenant as they are quite likely to default. For the building with a bank as a tenant the cap rate might be 8% and if the tenant was a startup then it might be 12%. This impacts the price even if the annual rent is the same. So for $50,000 NOI you can sell the building for $625,000 or (50,000/0.08) if bank is tenant. If startup is tenant then selling price is $416,666 or 50,000/0.12). The varying cap rate takes into account the risk. That is, there is less certainty that you will get the $50,000 if the tenant is the startup so you pay less for the income stream (the building).

Interesting take on it.