Capitalization Rate

Capitalization Rate

The capitalization rate (aka cap rate) is used in the world of commercial real estate to indicate the rate of return  that is expected to be made on a real estate investment property. This measure is computed based on which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor’s potential return on their investment in the real estate market.