What Is Cap Rate in Real Estate? How Much You’ll Earn On an Investment
Cap rate, or capitalization rate, is the ratio of a property’s net income to its purchase price. It’s an essential number for gauging a property’s rental income potential. Many new real estate investors, for instance, assume that as long as their renters are paying more than their mortgage on the property, they’re golden. But that’s not the case. You also have to factor in your investment dollars, taxes, and other variables. That’s what cap rate does in one fell swoop.