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Capitalization Rate (Cap Rate)
The unleveraged rate of return on a property investment calculated by dividing annual Net Operating Income by current market asset value.
The Capitalization Rate (Cap Rate) is the unleveraged rate of return expected on a real estate investment property based on its anticipated Net Operating Income.
Expressed as a percentage, Cap Rate is calculated by dividing annual NOI by the current property acquisition price or market valuation (Cap Rate = NOI / Property Value). It serves as the primary benchmark for real estate pricing across asset classes.
Frequently Asked Questions
How is the Capitalization Rate (Cap Rate) calculated?
Cap Rate is calculated by dividing an asset's annual Net Operating Income (NOI) by its market value or purchase price (Cap Rate = NOI / Value). It excludes financing debt service.
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