# what does caps 9.67 mean

In Buying Property - Asked by allen h. - Jan 8, 2009

Investors Commercial Realty Group LLC ;.
Broker/Agent
Ambridge, PA

I think you are refering to the cap rate of a property which is the net operating income (NOI) divided by the sale or offering price. A property with an offering or sale price of \$1,000,000 that produces an income of \$100,000 per year after all the expenses of the property are paid excluding debt service would have a cap of 10%. Commonly stated as just 10 or "caps at 10".
Bill Keller Williams Commercial. billsellscommercialre@yahoo.com

Jan 9, 2009
Andres G.
Owner/Investor
Miami Beach, FL

Capitalization rate (or "cap rate") is a measure of the ratio between the net operating income produced by an asset (usually real estate) and its capital cost (the original price paid to buy the asset) or alternatively its current market value. The rate is calculated in a simple fashion as follows:
* annual net operating income / cost (or value) = Capitalization Rate
For example, if a building is purchased for \$1,000,000 sale price and it produces \$100,000 in positive net operating income (the amount left over after fixed costs and variable costs are subtracted from gross lease income) during one year, then:
* \$100,000 / \$1,000,000 = 0.10 = 10%
The asset's capitalization rate is ten percent.
Capitalization rates are an indirect measure of how fast an investment will pay for itself. In the example above, the purchased building will be fully capitalized (pay for itself) after ten years (100% divided by 10%). If the capitalization rate were 5%, the payback period would be twenty years. Note that a real estate appraisal in the U.S. uses net operating income. Cash flow equals net operating income minus debt service. Where sufficiently detailed information is not available, the capitalization rate will be derived or estimated from net operating income to determine cost, value or required annual income.

Jan 11, 2009

### Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.