CAPITALIZATION RATE RETOTD Episode 00117

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CAPITALIZATION RATE
A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price. Also referred to as cap rate. A rate of return used to estimate a property’s value based on that property’s net operating income (NOI). This rate is based on the rates of return prevalent in the marketplace for similar properties and intended to reflect the investment risk associated with a particular property. It is derived from market data on similar, recent, sales. (NOI ÷ property value or sales price = capitalization rate.)

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