Capitalization Rate (or “Cap Rate”)

The cap rate, short for capitalization rate, is a measure of real estate investment. It quantifies the relationship between a property’s net operating income (NOI) and its overall value, offering an initial, unleveraged return on investment. To calculate the cap rate, divide the property’s NOI by its selling price. This figure provides a real-time gauge of the percentage return an investor can expect when purchasing the property. It also proves valuable in estimating a property’s worth when the cap rate of comparable properties is known.

popup background image