# Capitalization Rate Calculator

Capitalization Rate Calculator is used to compute the capitalization rate - an estimate of the investor's potential return on his or her investment

Capitalization Rate (%):
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#### Background Information

What does Capitalization Rate mean?
The capitalization rate, or cap rate, helps in evaluating a real estate investment. It is a useful tool for people interested in real estate.
Importance of Bond Yield
The annual percentage yield is the rate of interest earned or accrued over the course of a year or 365 days. It takes into account the effect of compounding. The annual percentage yield gives you a better sense of an investment's true return, and of a loan's true cost.
Formula

Capitalization Rate = Net Operating Income / Current Market Value (Sales Price) of the asset

Example

Let's assume a man wants to buy an investment property worth \$900,000. He expects that it will generate \$125,000/year after the operating costs. Using the above formula, the cap rate will be:-

13.89% (\$125,000 / \$900,000 = 0.1389 = 13.89%)

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