Capitalization Rate

Investor Term:

Cap Rate


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


Cap Rate = NOI / Market Value


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