What is cap rate?
Cap rate (capitalization rate) is a property's net operating income for a year divided by its price or value. It is a quick way to compare the income return of investment properties.
In practice
- Net operating income is rent and other income minus operating expenses, before loan payments.
- Example: $60,000 net operating income on a $1,000,000 price is a 6% cap rate.
- It ignores financing and future changes, so investors use it with other measures.
General information, not legal, tax or financial advice. Rules vary by state and MLS.
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