reference
glossary.
25 terms
definition
A key metric used to evaluate the profitability of income-producing real estate investments, calculated by dividing annual net operating income by the property's current market value or purchase price. Often called 'cap rate,' this percentage helps investors compare different properties and assess potential returns. Higher cap rates typically indicate higher risk but potentially greater returns.
examples
- —The apartment building generates $50,000 annually and costs $500,000, resulting in a 10% capitalization rate.
- —Investors often seek properties with cap rates above 8% in emerging markets for better cash flow potential.