(Cap Rate)

Capitalization Rate

Investor Term:

Cap Rate

Definition:

A capitalization rate, or cap rate, measures the potential rate of return on a real estate investment. It is calculated by dividing a property's net operating income (NOI) by its market value. The cap rate is expressed as a percentage and can be used to compare different real estate investments.

Formula:

Cap Rate = NOI / Market Value

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EXAMPLE

For example, if a property has an NOI of $100,000 and a market value of $1,000,000, the cap rate would be 10%. This means the investor could expect a 10% return on their investment.