Real Estate & REITs
You buy a property with $100 of NOI at a 5% going-in cap rate, grow NOI 20% to $120, and exit at a 6% cap rate. What did you make, and what is the lesson?
Model answer
Nothing on price: purchase = $100 / 0.05 = $2,000; exit = $120 / 0.06 = $2,000. Twenty percent NOI growth was EXACTLY cancelled by 100 bps of cap rate expansion - your entire capital gain…
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