Cap Rate (Capitalization Rate)

Intermediate 🏠 Real Estate

Definition

Annual net income divided by property cost, the primary metric for evaluating commercial real estate investments.

Example Usage

The commercial property has a 7% cap rate, making it an attractive investment.

Origin

Financial analysis terminology used extensively in commercial real estate

Fun Fact

Higher cap rates indicate higher risk, while lower cap rates suggest better-located properties.

Source: Commercial Real Estate Investment

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