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Loading the Cap Rate

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Freshman Member
Apr 29, 2008
Professional Status
General Public
I'm valuing an income producing office building. The tenant has a net lease - they pay all expenses except base rent to the landlord. When doing an income analysis, should I not load the cap rate because the owner is not paying the property tax? When should a cap rate be loaded in relatively simple income valuations? Thank you.


Senior Member
Dec 3, 2006
Professional Status
Certified Residential Appraiser
I'm not a commercial appraiser and I know there are people on here who can answer this question for you, but haven't. I'm just going to throw something out to try and spark others on.

When determining the real estate tax on an income property it would be appropriate to remove the taxes from the income statement and net income to be capitalized, because otherwise you'd be pre-supposing your conclusion.

If you are dealing with long term leases and want the leased fee value, you'd use a direct cap rate to the actual, not a loaded rate; if you are doing a fee simple valuation, leases are short term, you'd want to determine the market rent for your property and use direct capitalization, not a loaded cap rate.
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