How Do You Figure Cap Rate?


Quick Answer

To calculate the capitalization rate of an asset, get the most recent sale price of the asset and then determine its net operating income. Finally, divide the asset's net operating income by its sale price.

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Full Answer

The cap rate is typically used in real estate to determine the value of an income property. It is used to estimate the length of time it takes for a property to pay for itself. The cap rate can be used to compare investment opportunities in a particular area without bias. Some experts warn, however, that the cap rate is not always an accurate ratio.

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