Capitalization Rate Calculator

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%)