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Commercial Real Estate Terms: What is a Capitalization Rate (CAP Rate)?

April 26, 2017cap capitalization Commercial rate Real Estate terms

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Commercial Real Estate Terms: What is a Capitalization Rate (CAP Rate)?

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The amount of income being received on a real estate investment within a certain time period. Also known as a “Cap Rate”, Capitalization Rates are used to figure out how much time will be needed to reach a certain level of profit upon an investment. The formula for calculating the CAP Rate is: Net Operating Income (NOI) divided by Market Value equals Capitalization Rate or NOI / Market Value = CAP Rate Example: NOI of a property is $100,000. per year. If the market value of the property is $1,000,000, the CAP Rate would be 10%.