# 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

### Other articles related to "capitalization rate, rate, rates":

Capitalization Rate - Recent Trends
... and Federal Reserve showed that from the beginning of 2001 to end of 2007, the cap rate for offices dropped from about 10% to 5.5%, and for apartments from about 8.5% to 6% ... At the peak of the real estate bubble in 2006 and 2007, some deals were done at even lower rates for instance, New York City's Stuyvesant Town and Peter Cooper Village apartment ... Most deals at these low rates used a great deal of leverage in an attempt to lift equity returns, generating negative cashflows and refinancing ...
Income Approach - Direct Capitalization
... This is simply the quotient of dividing the annual net operating income (NOI) by the appropriate capitalization rate (CAP rate) ... The CAP rate may be determined in one of several ways, including market extraction, band-of-investments, or a built-up method ... -- contamination), a risk-adjusted cap rate is appropriate ...

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