Capitalization Rate

The Capitalization Rate, often called "cap rate," is a key concept in real estate investment. It represents the expected rate of return on a property, calculated by dividing the property's annual net operating income by its current market value or purchase price. For example, if a property generates $10,000 in annual income and is valued at $100,000, the cap rate would be 10%. Investors use the cap rate to assess the potential profitability of real estate investments and compare different properties, helping them make informed decisions.