cap rate

Capitalization Rate

The net income an asset produces in a given year divided by its purchase price. The capitalization rate is used to help determine the rate of return, or how fast an asset pays for itself and begins to make a profit. For example, if an asset cost $1,000,000 and it produces $100,000 in a given year, the capitalization rate is 10% and it will take 10 years to pay for the asset with the money it produces. However, it is important to note that the capitalization rate may change from year to year. For example, the same asset could produce $100,000 in year one but $250,000 in year two. It is informally known as the cap rate.

cap rate

See capitalization rate.

References in periodicals archive ?
In those markets where change is anticipated, cap rates are more likely to increase rather than decrease--but any changes will be small," CBRE's North America Cap Rate Survey reported.
Cap rate is the ratio between annual net operating income and the price paid to purchase a property.
Residual Cap Rate, overall capitalization rate used in calculation
The cap rate for mid- and high-rise properties in major metros dipped to 3-6 percent, or nearly 20 bps under the rates seen during the condo conversion craze of the mid 2000s.
Since December, the average cap rate for office transactions was 7.
In appraisal textbooks, the relationship between discount rates and overall capitalization rates, or cap rates, is a simple one: Discount rate = cap rate + income growth rate or
Other points of interest in the 2007 Cap Rate Report include the fact that the Midwest region has the highest average cap rate in the U.
Divide the NOI into the CAP rate and you get an estimated value.
We present detailed historical pricing and cap rate trends for shopping centers of all types, as well as neighborhood and community centers and strip centers across numerous geographic regions.
It sold for 10 times the current rent roll at a cap rate of 4.
New York, noted that the mean office cap rate of 6.
In the past, a cap rate might have been an end-of-line reality check thing: 'I've got through all of this and ended up with this cap; can I live with this?