REAL ESTATE UNDERWRITING
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Cap rate
Also called: capitalization rate · going-in cap
A yield metric commonly calculated as annual NOI divided by property value or purchase price.
What it means in practice.
Cap rate is a snapshot, not a total-return forecast. It does not by itself capture financing, future rent growth, capital expenditures, sale proceeds or tax consequences.
Why it matters.
Replacement-property investors use cap rates to compare pricing, but a lower cap rate is not automatically worse or safer.
Additional notes.
Cap rate is a snapshot, not a total-return forecast. It does not by itself capture financing, future rent growth, capital expenditures, sale proceeds or tax consequences.
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