Finance glossary
Capitalization Rate
Definition
A property net operating income divided by its market value.
The cap rate estimates the unleveraged return on a real estate investment, calculated as annual net operating income divided by current market value (or purchase price at acquisition). Lower cap rates imply higher prices and lower risk; higher cap rates suggest cheaper assets or greater risk.
In a sentence
The investor compared buildings by Capitalization Rate, dividing each one's net income by its price.
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