Band of Investment [2953]

The sale price was $11,000,000.  The mortgage was 60% LTV at 9% interest for a term of 20 years.  The NOI was $1,419,966.  What is the capitalization rate by the band of investment method?

Cap rate = (Mortgage Position x Mortgage Constant) + (Equity Position x Equity Dividend Rate)

Cap rate = (Mortgage Position x Mortgage Constant) + (Equity Position x Equity Dividend Rate)

Cap rate = (0.6 x 0.109546) + (0.4 x .1584)

Cap rate = (0.0657) + (0.0634)

Cap rate = 0.1291 (12.9%)

The mortgage position is the LTV (loan to value ratio)

The equity position is the ETV (equity to value ratio)