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Cap Rate
Useful Links > Glossary > Cap Rate
1031 Tax-deferred Exchange
After Tax Cash Flow
Appreciation
ATCF
Before Tax Cash Flow
BTCF
Cap Rate
Capital Gains Tax
Cash Flow
Cash on Cash Return (after taxes)
Cash on Cash Return (before taxes)
Closing Costs
DCR
Debt Coverage Ratio
Debt Service
Depreciable Allowance
Depreciable Improvements
Depreciable Years
Down Payment
Dwelling Size
Estimated Sales Cost
Expense Increase
GM
GOI
GRM
Gross Operating Income
Gross Rent Multiplier
Gross Scheduled Income
GSI
Home Protection Plan
Home Warranty
Income per Sqft
Insurance
Interest Only
IRR
Loan to Value Ratio
LTV
Name
Net Operating Income
NOI
Out-of-pocket Cost
Ownership Percentage
PMI
Property Appreciation
Property Details
Property Management
Property Taxes
Rent Increase
RoR on Appreciation
RoR on BTCF
RoR on Loan Reduction
RoR on Tax Savings
Sales Cost
Taxable Income
Taxes Due
Total Equity Accumulation
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Vacancy Rate
Value of Improvements
Yield
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Cap Rate
Cap rate is short for capitalization ratio. The cap rate of an investment property is determined by dividing the NOI (net operating income) by the purchase price. Cap rate is a quick calculation that gives an investor the relationship of purchase price to NOI. The limitation of the cap rate calculation is that it doesn't include debt service, which is often the biggest financial component of real estate investing. The higher the cap rate, generally the less risky and better chance of a good return on your investment. (see cash flow).

Use our free software to calculate the cap rate for any property

Calculation
Cap Rate = NOI / Purchase Price

Example
This example calculation assumes a property's annual NOI is $14,316 with a purchase price of $450,000.
Cap Rate = $14,316 / $450,000
Cap Rate = 3%.

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