We work with a lot of investors throughout the United States and throughout the world. A question we receive from many new to the Central Indiana market is: What kind of cap rate should I expect in Indianapolis?
As most of you know, the cap rate simply measures the annual net income of a property divided by the purchase price.
Related: The Definitive Guide to Investing in Indianapolis
How to Calculate a Cap Rate
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For example, let’s say you are considering a property that’s listed for sale for $90,000.
You determine that the home will rent for $1,100 per month, so your gross income would be $13,200 per year.
To get your net income, you would simply account for your expenses, which could include:
Property Management = $1,320
Taxes = $1,800
Insurance = $750
Maintenance = $1,980
Total Expense = $5,850
Net Income = $7,350
Cap Rate = $7,350/$90,000 = 8.2%
Indianapolis Investors Expect an 8%-10% Cap Rate
Generally, anything in the 8%-10% cap range is a good cap rate for Indianapolis. Some investors, especially those who are interesting in buying in nicer areas, are settling for smaller cap rates.
A few years ago, before the influx or corporate investors, you could have gotten between 10%-12% pretty easily. However, the increased competition has increased competition, which has increased prices.
If you have any questions about cap rates or investing in Indianapolis, please let us know.
