Capitalization Rate (Cap Rate)

Capitalization rate (cap rate) is in fact the “discount rate”, used for discounting the future income to determine its present value. There are two main purposes for which cap rate can be calculated and used.

We can calculate property’s cap rate and then compare it with other similar properties in a certain area. Capitalization rate is calculated as ratio of the net operating income and the value of the property and NOI has to be constant in time for this calculation.

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