Capitalization Rate (Cap Rate)
A ratio used to estimate the return on investment of a real estate investment property, like an apartment building. It is calculated by dividing the income a property will generate in a given year (after fixed and variable costs) by the purchase price or current value of the property. For example, an apartment building that recently sold for $1,000,000 and generates $100,000 in income after expenses has a capitalization rate of 10%.
A ratio used to estimate the return on investment of a real estate investment property, like an apartment building. It is calculated by dividing the income a property will generate in a given year (after fixed and variable costs) by the purchase price or current value of the property. For example, an apartment building that recently sold for $1,000,000 and generates $100,000 in income after expenses has a capitalization rate of 10%.
