Net operating income divided by property value, expressed as a percentage.
Cap rate tells you what a property earns before financing, relative to its price. It lets you compare income properties the way yield lets you compare bonds. Higher cap rates usually signal higher risk, not automatically a better deal.
Formula: Cap Rate = NOI ÷ Property Value × 100
Example: A property producing $52,000 NOI priced at $650,000 has an 8% cap rate ($52,000 ÷ $650,000).
FAQ
What is Cap Rate in simple terms?
Cap rate tells you what a property earns before financing, relative to its price. It lets you compare income properties the way yield lets you compare bonds. Higher cap rates usually signal higher risk, not automatically a better deal.
How is it calculated?
Cap Rate = NOI ÷ Property Value × 100. Example: A property producing $52,000 NOI priced at $650,000 has an 8% cap rate ($52,000 ÷ $650,000).