Calculate the Payback Period for an eREIT's Property Acquisition
Action of the week
Background: Real estate investors can use the cap rate to calculate the number of years it will take to recover their initial investment. Assuming the property was bought with cash and the NOI remains constant, the payback period (in years) is 100% divided by the cap rate.
Rationale: The faster the investment is returned via the acquired NOI, the sooner the cash can be redeployed into portfolio growth through additional acquisitions.
Action: Identify an eREIT that recently reported the acquisition of a property portfolio. From the corresponding press release, find the cap rate that was paid. Calculate the payback period.