A property’s annual net operating income divided by its value or purchase price.
What capitalization rate means in practice
The cap rate is a quick, unlevered yield measure used to compare income-producing properties. It does not include mortgage payments, income taxes, appreciation, or every future capital need, so it should not be the only investment metric.
Example
A property producing $18,000 of annual NOI and valued at $300,000 has a 6% cap rate.
This glossary is educational and not legal, tax, lending, or accounting advice. Rules and terminology can vary by jurisdiction and professional context.