Buildup Rate
An alternative method for arriving at a capitalization rate for a real estate investment. The buildup rate is the sum of all risks of an investment (denoted in percentage) plus the risk-free interest rate.
For example:
Risk-Free Rate (e.g. 10-yr UST): 2.25%
+
Illiquid nature of investment: 0.75%
+
Credit risk of tenants: 1.25%
+
Inflation risk: 1.00%
+
And so forth…
=
Buildup rate: 5.25%
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