How We Estimate Cap Rates Using Cactus AI
Our cap rate estimation process in Cactus is powered by a sophisticated AI model that combines reliable data from multiple sources to give you a well-informed cap rate range. Without going into the specific technical details, our AI leverages a variety of inputs, including location, asset type, property size, recent property sales and construction year—among other factors—to tailor the estimated cap rate to the specifics of your property. This approach allows us to provide insights that adapt to each unique project while maintaining flexibility for various asset types and locations.
Please note that this cap rate estimation feature is currently in beta as we continue to expand our data sources and refine the model. Over time, we’ll be incorporating even more data to enhance the accuracy of these estimates, making them increasingly reliable as our database grows.
Why This is a Quick Estimate
As part of our Quick Analysis tool, the cap rate estimate is intended to give you a fast, initial look at a property’s potential. However, because it’s based on limited project information, the results should be viewed as a general guideline rather than a precise figure. In our upcoming Underwriting platform, you’ll be able to input more detailed property data, leading to more accurate and tailored cap rate calculations.
Data and Partner Support
Cactus has aggregated data on cap rates through partnerships with reputable sources, providing a foundation for our estimates. However, for locations with fewer recent property sales, the estimates may be less precise due to limited comparable data. We continuously work to expand our partnerships and data sources to ensure that our AI model reflects current market trends as closely as possible.
What is a Cap Rate and Why it Matters?
In real estate, the cap rate is a key metric used to evaluate the investment potential of a property. It represents the ratio of a property's Net Operating Income (NOI) to its market value. For example, if a property generates $100,000 in NOI and has a cap rate of 6%, its estimated value would be $1,666,667. However, if the cap rate rises to 6.5%, the valuation would decrease to $1,538,462. A difference of just 0.5% in the cap rate can significantly impact the valuation, underscoring why accurate cap rate estimates are so valuable for investors.
Additional Options for Property Valuation
If you prefer, you can switch from using the cap rate estimate to entering your own valuation for the property. This flexibility allows you to use whichever metric aligns best with your investment approach.
Share Your Feedback
As we continue to improve our cap rate estimation tool, your feedback is invaluable. If you have suggestions or thoughts on how we can make this feature even better, please don’t hesitate to reach out to us.
We hope this article provides a helpful overview of how Cactus AI generates cap rates and how you can use these insights to support your investment decisions.