cap rates: What is a Cap Rate
- 09/06/09 10:55 PM
A Cap Rate, or Capitalization Rate, is a term used in commercial real estate to describe any rate used to convert income to value or price. This rate is not a rate of return and is actually a ratio. Some weaknesses and strengths of this method are indicated below: Weaknesses:
Does not consider impact of financing Does not consider the time value of money Limited utility for making investment decisions Does not consider the impact of taxes (income) Does not account well for uneven cash flows Strengths:
Easy to understand Easily extracted from comparable sales and serves as a … (4 comments)
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Scott Lanz
Certified General Appraiser Baxter Brainerd Commer
A Cap Rate, or Capitalization Rate, is a term used in commercial real estate to describe any rate used to convert income to value or price. This rate is not a rate of return and is actually a ratio. Some weaknesses and strengths of this method are indicated below:
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