cap rate: FAQ#5 - What's a CAP Rate and Why Do I Care?
- 05/30/12 07:39 AM
If you're actively investing in real estate, you know that a cap rate is a measure of the rate of return you might expect from an investment property. Simply stated, it is the annual net operating income divided by the market value of the property:
As an example, suppose that you purchased a rental home for $200,000, and that based on a monthly rent of $1500, your annual net income was $15,500 after expenses. Your cap rate would be 7.75%. Note that in figuring cap rates, net operating income is defined as earnings before depreciation and interest expense. Cap rates … (21 comments)
If you're actively investing in real estate, you know that a cap rate is a measure of the rate of return you might expect from an investment property. Simply stated, it is the annual net operating income divided by the market value of the property:
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