# what is a cap rate

In Buying Property - Asked by erin p. - Jul 4, 2014

#### Answer(s)

Gregory M.
Broker/Agent
Tampa, FL

The Cap Rate (Capitalization Rate) is a value measure (or ratio) based on the anticipated return for a buyer of real estate. The Cap Rate is calculated by dividing the NOI (Net Operating Income) by the Purchase Price. IE if the NOI of a property is 1,000,000 and the Purchase Price is 10,000,000 the Cap Rate is 10 (.10).

Jul 4, 2014
Sam O.
Broker/Agent
Sherman Oaks, CA

its the return you get on your investment from income you get from income producing property after the deduction off all expenses , that is assuming you paid all cash for the property.
for example if you paid \$1 million cash and the net income is \$75,000 then the cap rate is 7.5%

Jul 4, 2014
Jient L.
Tarzana, CA

Current Cap Rate= Current Revenue divided by Current Offering Price reported by the Seller; higher the Cap Rate, the better return on the investment.

Jul 5, 2014
Otis D.
Broker/Agent
New York, NY

Understanding Cap Rate is a Must! The Cap Rate is computed by taking the rental net operating income (NOI) and dividing it by the property's Fair Market Value (FMV).
Example-
Property has an NOI of \$100,000 with a FMV of 10%. \$100,000 divided by .10 equals \$1,000,000
The more risk in the market dictates a higher cap rate.
Less risk in the market dictates a lower cap rate.

Jul 6, 2014
Damon D.
Broker/Agent
Bala Cynwyd, PA

In addition to cap rate, two other important tools to help determine value are cash on cash return and internal rate of return. There are plenty of definitions and examples on google. Also, two good sources of info are the forum pages on BiggerPockets.com and AskCRE.com. I have no connection to either.

Jul 6, 2014
Holton W.
Property/Asset Manager
Cleveland, OH

NOI divided by Acquisition cost.

Jan 19, 2015

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