Cap Rate
Also known as capitalisation rate, capitalization rate
A capitalisation rate is a property's net operating income divided by its value, expressed as a percentage: the unlevered yield the building produces.
Why It Matters
It is the standard measure of what investors will pay for property income. When cap rates rise, values fall even if rents are unchanged.
Related Terms
- NOINet operating income is the rental income of a property after operating costs, before financing and tax.
- Property ValuationProperty valuation is the estimation of what a building is worth, from comparable sales, from the income it produces, or from the cost to replace it.
- YieldYield is the income an investment pays, expressed as a percentage of its price.
- Real Estate InvestmentReal estate investment is the purchase of property for income and capital return, directly, through funds or through listed vehicles.
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