When investing in real estate, one of the most important terms to grasp is the capitalization rate or “cap rate”. It provides a quick way to evaluate the potential profitability of an investment property. In this blog post, we’ll break down the Net Cap Rate and Gross Cap Rate, explain how they differ, and describe how to determine an “acceptable” cap rate for a particular neighborhood.

What is the Gross Cap Rate?

The Gross Cap Rate (GCR) is a measure of a property’s potential return before factoring in expenses like property taxes, maintenance, insurance, and other operating costs. It’s calculated using the gross income the property generates.

Formula:

Example:

Imagine you purchase a rental property for $500,000, and the property generates a monthly rental income of $3,000.

In this case, the Gross Cap Rate is 7.2%.

Limitations:

While Gross Cap Rate is a helpful starting point, it doesn\’t account for expenses such as property taxes, insurance, utilities, or repairs. That’s where the Net Cap Rate comes in.

 

What is the Net Cap Rate?

The Net Cap Rate (NCR) refines the calculation by including the property’s operating expenses. It gives a more accurate representation of the property’s profitability.

Formula:

Net Operating Income (NOI) is the annual income the property generates after expenses are subtracted.

Example:

Let’s revisit the $500,000 property, but now include these annual expenses:

• Property taxes: $5,000
• Insurance: $1,500
• Maintenance and repairs: $3,000

In this case, the Net Cap Rate is 5.3%.

Why Net Cap Rate Matters:

The Net Cap Rate provides a clearer picture of profitability because it accounts for the actual costs of running the property. It’s a key metric used by investors to compare properties and make informed decisions.

What is an \”Acceptable\” Cap Rate for a Neighborhood?

The “acceptable” cap rate varies depending on the location, property type, and investment goals. Factors like local market conditions, risk tolerance, and long-term investment strategies all play a role.

General Guidelines:

1. High Cap Rates (8-12%+):
   • Typically found in riskier neighborhoods or markets.
   • Higher potential returns but often come with greater management challenges or market instability.
2. Moderate Cap Rates (5-8%):
   • Common in suburban or stable markets.
   • Balances risk and return, making it attractive for many investors.
3. Low Cap Rates (3-5%):
   • Often found in premium or high-demand markets (e.g., luxury properties or prime city locations).
   • Indicates lower risk but also lower returns.

How to Find Neighborhood Cap Rates:

• Research Local Listings: Use platforms like Zillow, LoopNet, or Redfin to see rental incomes and prices in the area.
• Talk to Local Experts: Real estate agents and property managers often have insights into typical cap rates for their region.
• Analyze Comps: Look at comparable properties that have recently sold and compare their gross and net incomes.
• Market Trends: Evaluate economic growth, employment rates, and demand for rentals in the neighborhood.

Making Cap Rate Work for You

When evaluating cap rates, consider these tips:

1. Align with Your Goals:
   • If you’re seeking cash flow, prioritize properties with higher cap rates.
   • For long-term appreciation, you might accept lower cap rates in growth markets.
2. Factor in Risk: Higher cap rates often indicate greater risk, so assess the stability of the neighborhood.
3. Adjust for Expenses: Always calculate the Net Cap Rate to get the full picture.

Pro Tip:

Use cap rate in combination with other metrics like cash-on-cash return, internal rate of return (IRR), and gross rent multiplier (GRM) for a comprehensive analysis.

Understanding Gross Cap Rate and Net Cap Rate in Real Estate

Understanding Gross Cap Rate and Net Cap Rate is essential for making sound real estate investment decisions. While Gross Cap Rate offers a quick estimate, the Net Cap Rate gives a deeper understanding of a property\’s profitability by factoring in expenses. The “acceptable” cap rate for a neighborhood depends on market conditions, property types, and your investment strategy.

Invest wisely, and remember that real estate success is about finding the right balance between risk and return!

Are you struggling to create strong, reliable investment returns?

Real Estate investing continues to be the best strategy combining cash-flow, appreciation, and tax benefits. 

Now 1 out of 3 homes sold involve an investor!

Why are investors from Wall Street to Main Street doubling down on rental properties?

A few of the many reasons include:

• It\’s 52% more expensive to buy than to rent
• In the post-COVID world people want to be mobile
• Gen X now have families and need single-family homes
• Real Estate is a great inflation hedge

Join us Tuesday, December 17th at 12 pm PST/2 pm CT/3 pm EST.

And you do NOT have to be an active investor or a general contractor to be a real estate investor!

In fact you can own homes all across the country as a passive investor and cash rent checks every month.

With the right inside information, you can start investing with little capital or experience and leverage the best of the best.

Join us for an exclusive webinar with 2 industry leaders who will show you how to start your journey of profitable real estate investing.

Colin Brechbill, co-founder of ResiCap, and Chris Fellows, CEO of Bold Street, will share:

• Inside strategies the best investors know
• How to pick hot markets
• Finding and building your team
• Financing a portfolio

Join us Tuesday, December 17th at 12 pm PST/2 pm CT/3 pm EST.

Don\’t miss this exciting opportunity to drive your highest investment returns in 2025.

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The Top 5 SFR Investment Cities for 2025

Investing in single-family rentals (SFRs) continues to be a lucrative opportunity for real estate investors seeking steady income and long-term appreciation. However, choosing the right location is critical to maximizing returns. For 2025, five standout cities are:

• Kansas City, KS
• Augusta, GA
• Chattanooga, TN
• Columbia, SC
• Charlotte, NC

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1. Kansas City, KS: A Hidden Gem in the Heartland

Kansas City offers investors higher-than-average cap rates, making it an attractive choice for those seeking strong cash flow. The city boasts a vibrant local economy fueled by industries like logistics, manufacturing, and healthcare.

• Why Invest? Moderate local inflation keeps costs manageable for investors, while steady job growth supports reliable and rising rents.
• Property Management Advantage: Kansas City is home to experienced property management teams that simplify remote investing.
• Available Inventory: The city’s relatively lower property prices and diverse inventory offer opportunities for first-time and seasoned investors alike.

With its affordable housing market and reliable demand, Kansas City is a prime choice for investors in 2025.

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2. Augusta, GA: A Southern Charmer with Strong Returns

Known for hosting the prestigious Masters Golf Tournament, Augusta benefits from robust tourist activity, which bolsters its economy and housing demand. Its affordability and steady rental growth make it an SFR hotspot.

• Why Invest? Augusta’s cap rates are highly competitive, with low overall investor competition. This allows new entrants to secure prime deals without bidding wars.
• Strong Economy: Key industries like healthcare and manufacturing ensure stability, while the presence of Fort Gordon provides a consistent tenant base of military personnel.
• Rising Rents: Despite being affordable, Augusta has seen a steady increase in rental rates, offering investors the potential for growth.

Augusta combines affordability with growth potential, making it a smart bet for 2025.

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3. Chattanooga, TN: The Scenic City with Investment Appeal

Chattanooga’s combination of affordability, economic growth, and strong rental demand has earned it a reputation as a top SFR investment city. Nestled in the Appalachian Mountains, the city’s scenic beauty and outdoor activities attract both residents and tourists.

• Why Invest? Chattanooga offers some of the highest cap rates in the Southeast, making it a cash flow haven.
• Economic Growth: The city’s growing tech sector, strong tourism activity, and strategic location on the Tennessee River create a stable economic foundation.
• Lower Competition: Compared to larger metro areas, Chattanooga still has less investor saturation, leaving room for savvy buyers to secure deals.

Chattanooga’s blend of charm and economic potential makes it a standout city for SFR investments.

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4. Columbia, SC: A Rising Star in the Southeast

South Carolina’s capital city is a hub of education, healthcare, and military activity. Columbia’s affordable housing market and steady rental growth make it an attractive choice for SFR investors.

• Why Invest? Columbia offers a balance of reliable rents and strong cap rates, ensuring a solid return on investment.
• Local Economy: Anchored by institutions like the University of South Carolina and Fort Jackson, Columbia benefits from a stable tenant base.
• Inventory Availability: Investors can find well-priced properties with the potential for appreciation in a market that remains less competitive than others in the region.

Columbia’s steady growth and moderate inflation make it a practical choice for long-term SFR investment.

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5. Charlotte, NC: A Booming Metropolis with High Demand

Charlotte is a fast-growing city with a robust economy, making it a prime target for SFR investors. Its status as a financial hub, combined with population growth, has led to consistent demand for housing.

• Why Invest? Charlotte’s rental market is thriving, with rents rising steadily year-over-year. Cap rates are lower than in some smaller markets but still offer solid returns due to the city’s appreciation potential.
• Strong Economy: With a focus on finance, healthcare, and tech, Charlotte’s economy attracts a diverse tenant base.
• Inventory and Competition: While competition is higher than in other cities on this list, the city’s inventory and long-term growth potential make it worth considering.

Charlotte offers a blend of stability and growth, appealing to investors looking for appreciation and rental income.

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Investing in SFR properties requires careful market selection, and Kansas City, Augusta, Chattanooga, Columbia, and Charlotte all stand out as excellent options for 2025. With strong local economies, rising rents, and manageable investor competition, these cities provide opportunities for both cash flow and long-term growth. Whether you\’re a first-time investor or an experienced one, these markets are worth exploring to expand your portfolio and secure your financial future.

Start researching these cities now and position yourself for success in the thriving SFR market of 2025!

To find an Investor Agent and get access to the Bold Street technology for residential investing, please fill out your contact information and we\’ll get you set up.

Thursday, September 18, 2024 – In line with market expectations, the Federal Reserve announced today a 0.50% cut to the federal funds rate. This decision aims to support economic growth now that inflation has come under control. The rate cut is set to have significant effects on mortgage rates, the real estate market, and the broader economy.

Impact on Mortgage Rates

Lower Interest Rates for Homebuyers

With the reduction in the federal funds rate, prospective homebuyers can expect lower mortgage rates, making home loans more affordable. Home owners with lower interest rate mortgages may consider purchasing a new home. New home buyers may also consider buying sooner rather than later.

Refinancing Opportunities

Homeowners with existing mortgages may find it advantageous to refinance their loans at the new, lower rates, potentially reducing their monthly payments and overall interest expenses.

Investor Activity

Continued low mortgage rates may attract more investors to the real estate market, seeking competitive returns on their investments.

Effects on the Real Estate Market

Sustained Demand

Cheaper borrowing costs are likely to keep demand for both new and existing homes strong, supporting sales volumes across the country.

Increased Home Prices

While demand remains robust, the anticipation and realization of the rate cut may lead to increased home prices, as demand and transaction volume increases.

Construction Activity

Builders may increase the number construction projects to meet demand, positively affecting the construction industry and related sectors such as materials and labor.

Economic Implications

Support for Economic Growth

Lower interest rates encourage spending and investment by businesses and consumers, which can sustain GDP growth and potentially stimulate job creation.

Inflation Monitoring

The Fed will continue to keep a close eye on inflation indicators to balance the goal of stimulating economic activity with the need to maintain price stability.

Financial Markets Reaction

Stock markets may respond positively to the rate cut, as lower borrowing costs can boost corporate profits and consumer spending. However, much of this reaction may have already been priced in by investors anticipating the move.

Global Economic Context

The rate cut contributes to a global environment of less restrictive monetary policy, which can influence exchange rates, international trade dynamics and economies around the world.

Catalyst for Housing Market Growth and Real Estate Investment Opportunities

The Federal Reserve\’s 0.50% rate cut represents a significant development for the real estate industry. By lowering borrowing costs, the decision is poised to stimulate increased activity in the housing market. Prospective homebuyers may find it easier to secure financing, current homeowners could benefit from refinancing opportunities that reduce their mortgage payments, or they may consider purchasing a new home.

Real estate investors might seize the opportunity to expand their portfolios under more favorable financing conditions. Builders and developers could respond to sustained demand by initiating new construction projects, further boosting the industry and contributing to job creation.

As these changes take effect, staying informed about market trends and financial conditions becomes essential for buyers, sellers, investors, and real estate professionals. Understanding how the rate cut influences mortgage rates, housing demand, and property values will help stakeholders make strategic decisions in this evolving landscape.

Follow the Bold Street blog to track future events that affect the real estate industry and the economy.

Thursday, August 22nd, 2024 – As we approach the end of summer, all eyes in the financial world are on the Federal Reserve, with particular attention on the upcoming speech by Fed Chairman Jerome Powell at the Jackson Hole Economic Symposium tomorrow. Market participants are eager to glean any signals about the central bank’s next moves, especially as speculation around potential rate cuts heats up.

Current Expectations for Rate Cuts

According to the CME FedWatch Tool, which we\’ve written about previously, market expectations for rate cuts have been fluctuating throughout the year, driven by shifting economic data and evolving inflation trends. As of now, the tool suggests at least three 0.25% cuts this year, in September, November and December. It is also suggesting that there is also the possibility of a 0.50% cut in September, instead of a 0.25% cut, and a higher chance of a 0.50% cut, instead of a 0.25% cut, in November and December. This sentiment is largely fueled by signs of easing inflation pressures and concerns about potential economic slowdown.

Jerome Powell’s Jackson Hole Speech: What to Expect

The Jackson Hole Symposium has historically been a stage for significant policy announcements, and this year’s event is no different. Jerome Powell’s speech on Friday is highly anticipated, especially given the uncertainty surrounding the Fed\’s next steps.

Analysts expect Powell to strike a cautious tone, balancing the Fed’s dual mandate of controlling inflation while supporting employment. Any hints of dovishness in his speech could further fuel market expectations for rate cuts, especially if Powell acknowledges the recent softening in inflation data or signals concerns about economic growth.

However, Powell is also known for his careful communication. While he may acknowledge these factors, he could also emphasize the Fed’s commitment to bringing inflation closer to its long-term target, suggesting that any rate cuts might be more gradual than markets currently anticipate.

Implications for Real Estate Investors and the Economy

The Fed\’s rate decisions have broad implications for various sectors, particularly real estate, where interest rates directly impact mortgage rates and, consequently, home affordability. A potential rate cut could be a boon for the housing market, potentially easing mortgage rates and spurring demand. Jerome Powell’s upcoming remarks at Jackson Hole will be crucial in shaping the narrative for the rest of 2024.

The recent settlement involving the National Association of Realtors (NAR) has introduced significant changes that affect everyone in the real estate market—buyers, sellers, and agents alike. These changes are designed to make the process more transparent and competitive, but they also bring new considerations for all parties involved. Here’s a breakdown of what you need to know and how these changes might affect you.

For Buyers: More Transparency and Flexibility

1. Clearer Fee Structures: As a buyer, you now benefit from greater transparency in real estate commission fees. Agents are required to clearly disclose how much they are being paid and by whom. This means you can see exactly what the seller is paying your agent, helping you make more informed decisions during your home search.
2. Negotiable Commissions: One of the most significant changes is the emphasis on the negotiability of commission fees. You’re no longer locked into a standard rate; you can negotiate with your agent to reduce fees, potentially lowering your overall home-buying costs.
3. Freedom to Choose Your Agent: You have more options than ever when it comes to choosing a real estate agent or brokerage. Whether you want lower fees or specialized services, you can shop around to find the best fit for your needs.

For Sellers: Control and Savings

1. Transparent Costs: For sellers, the new rules mean you’ll have a clearer understanding of the costs involved in selling your home. Agents must be upfront about their fees, giving you the power to make informed decisions about who you hire to represent your property.
2. Commission Negotiation: Just as buyers can negotiate commissions, so can you as a seller. You have more leverage to negotiate lower commissions with your listing agent and even the buyer’s agent. This can lead to significant cost savings when selling your home.
3. Choosing the Right Agent: With more transparency and competition among agents, you have the freedom to choose a broker who offers the best value. This might mean selecting an agent with a competitive commission structure or one who offers additional services that align with your goals.

For Agents: Adapting to a New Market

1. Embrace Transparency: As an agent, you’ll need to adjust to a new level of openness regarding your fees. While this may require more upfront communication, it also provides an opportunity to build trust with your clients by clearly explaining the value you provide.
2. Flexible Commission Structures: With commissions now more negotiable, you may find yourself in more frequent discussions about fees with both buyers and sellers. To stay competitive, you might need to offer flexible commission structures or additional services that justify your rates.
3. Increased Competition: The real estate market is likely to become more competitive as buyers and sellers become more empowered. To stand out, you’ll need to highlight your unique value proposition, whether that’s through personalized service, market expertise, or innovative use of technology.
4. Dual Agency Transparency: If you represent both a buyer and a seller in the same transaction, you must clearly disclose this dual agency relationship. Transparency in these situations is crucial, as it ensures that both parties understand the potential conflicts of interest and can make informed decisions.
5. Leveraging Technology with Bold Street: In this evolving landscape, technology can be your ally. Bold Street offers tools that can help you stay ahead in a competitive market. With Bold Street, you can streamline your marketing efforts, generate leads more efficiently, and enhance your client interactions through data-driven insights. This platform can help you to deliver top-notch service to your clients. By using Bold Street, you can differentiate yourself from other agents, offering a modern, tech-savvy approach that appeals to today’s informed buyers and sellers.

What Buyers, Sellers and Agents Need to Know

Whether you\’re a buyer, seller, or real estate agent, the NAR lawsuit settlement has reshaped the real estate market in ways that emphasize transparency, competition, and flexibility.

• Buyers now have more control over their costs and choices.
• Sellers can negotiate better deals and select the best agent for their needs.
• Agents must adapt to a more competitive environment but can thrive by embracing transparency, showcasing their value, and leveraging technology like Bold Street.

By staying informed and proactive, you can make the most of these changes and succeed in today’s evolving real estate market. Whether you\’re buying, selling, or representing clients, understanding these new dynamics will help you navigate the process with confidence and clarity.

On August 14th, 2024, Bold Street AI took center stage at a bustling brokerage in Gilbert, Arizona, where the team introduced their revolutionary approach to real estate investing. Hosted by Shane Dodd, the visionary broker behind Realty One, this special event provided a first look at the next phase of the real estate agent\’s journey: the Investor Agent Era. This session was not only attended by a great number of engaged agents, but it was also live-streamed on Facebook, where agents across the country tuned in for insights and inspiration.

The energy in the room was palpable, with agents eager to learn about innovative ways to provide value to their clients in this ever-evolving industry. The Bold Street team highlighted the pivotal role real estate professionals play in helping their clients build wealth through investment properties. The presentation also touched on the current trends impacting homeownership in the U.S., specifically how many Americans are opting to rent while investing in real estate for future financial security.

Bold Street will be returning this week for a full training session at Realty One, hoping to see even more participation and enthusiasm from agents ready to take their business to the next level. According to Bold Street, \”The questions were fantastic, and the interest was clear. Agents are hungry for new strategies to stand out in the competitive market, and we\’re excited to help them do just that.\”

More about Realty One Group

Realty One Group is a modern, fast-growing real estate brokerage that was founded in 2005 by Kuba Jewgieniew. It is known for its unique business model, blending traditional real estate practices with a culture of innovation and collaboration. Realty One operates as a franchise, with offices across the U.S., Canada, and several other countries.

Realty One Group is well-suited for agents looking for independence, flexibility, and a supportive yet innovative environment where they can grow their businesses and thrive in a rapidly changing industry.

 

More about Bold Street

Bold Street empowers real estate agents to grow their businesses by working with residential investors. The company’s mission is grounded in people-first values, with an unwavering commitment to leadership, tenacity, and customer success. As real estate undergoes massive disruption, Bold Street firmly believes that agents will continue to play a hyper-local, relationship-driven role in their clients\’ lives. Bold Street helps agents embrace this new era by offering cutting-edge technology and training, all while staying focused on the American dream of financial independence through real estate.

Real estate agents who partner with Bold Street benefit from continual improvement, leadership, and a culture of excellence. As the team loves to say, “Excellence is built day after day,” and they work tirelessly to ensure their clients are winning—both in the market and in life.

With excellent attendance, lively discussion, and a palpable buzz, Bold Street\’s introduction at Realty One in Gilbert was a resounding success. As agents gear up for this week’s full training, Bold Street is positioned to make a lasting impact on their business growth. Stay tuned for more updates and successes from this exciting partnership!

The real estate investing landscape is more exciting and accessible than ever before. With dynamic changes and innovative strategies shaping the market, there has never been a better time to become a real estate investor.

The Importance of Local Investors

As highlighted in a mid-year 2024 report by New Western, local investors are playing a pivotal role, contributing to affordable housing, and balancing inventory through flipping and building activities. This trend underscores the importance of real estate agents who can navigate investment opportunities and cater to investor needs. Their intimate knowledge of local markets allows them to identify opportunities that others might miss.

According to New Western, \”Local investors are small business owners making an impact on housing inventory and their outlook on REI is positive. 91% of New Western investors expect their businesses to grow despite market conditions and 80% plan to flip 1-5 homes this year.\”

The Fresh Faces of Gen Z and Female Investors

The real estate investing community is becoming increasingly diverse, with Gen Z and female investors making significant strides. These new investors bring fresh perspectives, leveraging technology and social media to uncover opportunities and make informed decisions. This shift underscores that real estate investing is not just for seasoned veterans. It’s also a field ripe for new ideas and innovative approaches.

Here\’s New Western\’s take, \”Gen Z investors are highly ambitious with 79% having started their small businesses in the last few years. The amount of REI content available on YouTube and social media has allowed Gen Z to learn faster and absorb complex REI strategies using modern technology that they prefer. Although they began in a high-rate environment, these Gen Zers expect major business growth of as much as 50% in 2024. They also plan to buy more properties than their Boomer, Millennial, and Gen X investor counterparts.\”

Historic Surge of New Investors Entering the Market

Maximizing Opportunities for All Buyers

At Bold Street, we advocate for every buyer, including family buyers, to adopt an investment mindset. By leveraging market trends and insights from industry experts, agents can provide clients with strategies that enhance long-term value and financial security. Whether it’s a first-time homebuyer or a seasoned investor, understanding the potential for property appreciation and rental income can lead to more informed and lucrative purchasing decisions.

2024 is the Perfect Time to Become a Real Estate Investor

The evolving real estate market demands agents who are not just transaction facilitators but also investment advisors. By staying informed and adapting to trends, agents can unlock new opportunities and deliver unparalleled value to their clients. Embracing this dual role will not only enhance their professional reputation but also contribute to the growth and stability of the real estate market.

Wednesday, July 31st, 2024 – Federal Reserve Chairman Jerome Powell hinted at a potential reduction in the policy rate as early as the September 2024 meeting, provided the economic data supports such a move. \”We think that the time is approaching,\” Powell said. \”If we do get the data that we hope we get, then a reduction in our policy rate could be on the table at the September meeting\” (CNBC).

The CME FedWatch Tool, which we have mentioned in a previous blog post, is currently showing an 87.5% chance of a reduction of 25 basis points (0.25%), to a 500-525 basis points (5%-5.25%) target rate, down from the current 525-550 basis points (5.25%-5.5%) target rate.

Mortgage Rates and the Real Estate Market

A reduction in the policy rate by the Federal Reserve typically leads to a corresponding decrease in mortgage rates. Lower mortgage rates make borrowing cheaper for prospective homebuyers, increasing demand for real estate. Home owners who have lower interest rates may start to consider selling their homes, which will put more homes on the market and increase the number of real estate transactions.

Investor Activity

For real estate investors, a rate cut can signify an opportunity to finance investments at a lower cost. This may lead to increased activity in the single-family rentals market. Investors may seek to capitalize on the lower financing costs to expand their portfolios, potentially driving up property values in targeted areas.

Strategies for Buyers and Sellers

For buyers, a potential rate cut suggests a window of opportunity to secure lower mortgage rates. Prospective buyers should stay informed about the Fed\’s decisions and be prepared to act quickly if rates drop. For sellers, the anticipation of increased demand might be a signal to list properties sooner rather than later to take advantage of favorable market conditions.

Fed Rate Cut in September 2024: Implications for the Real Estate Market

The Federal Reserve\’s potential rate cut in September will have significant effects on the single-family rental market. Staying informed and strategically planning can help stakeholders navigate these changes effectively. Follow our blog to keep up on market movements and sign up for our investment platform to capitalize on new opportunities.