Glossary
Capitalization Rate (Cap Rate)
A property's net operating income divided by its value — a quick measure of unlevered yield.
The capitalization rate is a property's annual net operating income (NOI) divided by its value or price, expressed as a percentage. It's a shorthand for the unlevered yield of an asset and a common way to compare income properties: a lower cap rate generally implies a higher price relative to income (and often lower perceived risk), a higher cap rate the reverse. It is a snapshot, not a full return measure.