Capitalization Rate

Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value. The rate is calculated in a simple fashion as follows:


\mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

Read more about Capitalization Rate:  Explanatory Examples, Use For Valuation, Use For Comparison, Reversionary, Change in Asset Value, Recent Trends

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