Cap Rate

Capitalisation rate, or cap rate, is a metric used in the real estate industry to estimate the potential return on an investment property. It is calculated by dividing the property's net operating income (NOI) by its current market value or purchase price.

Essentially, the cap rate provides a quick, initial rate of return that an investor might expect from the property if it's purchased in cash.

Cap rates are particularly valuable because they allow investors to evaluate the risk and return profile of various properties without getting entangled in the specifics of financing. The higher the cap rate, the higher the potential return, but this also usually comes with higher risk.