CAP Rate Definition

The CAP rate (also known as the capitalization rate) is the rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value. It is the ratio of the annual NOI (net operating income) to the property price (or value).

Commercial realtors and property owners often quote "market" cap rates. You should not base your investment decision on market cap rates. It should be based on your personal cap rate (what is the return that you want and/or expect.

Return From CAP Rate to Commercial Glossary