A cap rate (short for Capitalization Rate) tells you what the market will bear. The cap rate is the market cap rate at the time you plan on executing your exit strategy, either buying, selling or refinancing. To determine the market cap rate, find the cap rates of three deals that have closed in the last 12 months.
Hotel and Hospitality examples:
9,166 SF Hospitality Building Offered at $4,000,000 at a 7.88% Cap Rate in Las Vegas, NV
11,264 SF Hospitality Building Offered at $4,175,000 at a 6% Cap Rate in Carson City, NV
9,492 SF Hospitality Building Offered at $2,790,000 at a 9.25% Cap Rate in Reno, NV
Find the average of three cap rates and that’s your market cap rate.