Board Topic: What is OAR capitalization in real estate
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What is OAR capitalization in real estate

Posted by: SMITH May 21 2004, 12:35 PM
This friend of mine just told me that he looks at the OAR capitalization rate in real estate properties. Can you tell me what OAR rate is?

Thanks for your help with the definition

Posted by: loanuniverse May 21 2004, 08:24 PM
SMITH:

Normally when evaluating an income producing property, it is good form to use different approaches to arrive an at estimate of value. The big ones are:

The Sales Comparison approach

The Cost approach

The Income approach


Of course, everything comes down to cash flow and this is the reason why in income producing properties, the income approach is given a bit more weight.

Having said that, let me answer your question.

The definition of OAR cap rate is:

The ”OAR” is an abbreviation of “Overall Rate”. It is an income capitalization rate that reflects the relationship between one year’s NOI and the total value of the property. The OAR for a particular property is a subjective number that is very much influenced by the market. For example, a particular city might have a 9% OAR rate, while another one might have a 7% OAR rate. Frankly, the nature of real estate is such a local directed business that those differences can be found between neighborhoods within a city only a few blocks apart.

Hope this helps.
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