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What are the practical and theoretical weaknesses

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Question - Your uncle passed away and left you $10 million with the stipulation that it be invested in real estate in the next 90 days. As word of your newfound wealth leaked into the real estate brokerage community, a line of brokers formed outside your door.

You run into broker Captain Rate. "I have a deal for you. It's an industrial property. You can buy it at an 8 cap. Comparable leased warehouses sell for 6.0 caps. The best news is that the tenant who occupies the whole building is vacating in July and you can do whatever you want with the building; it'll be totally unencumbered by leases! It's an 8 cap, what a great deal."

What are the practical and theoretical weaknesses in the investment/valuation methodology of Cap Rate?

Reference no: EM133179392

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