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Capitalization is a way to figure out how much a property is worth by looking at the money it can make. It helps you compare properties and decide which one is a better investment. You take the money the property earns in a year and divide it by a percentage called the "capitalization rate."
For example, if a building earns $10,000 a year in rent and the capitalization rate is 10%, you would divide $10,000 by 0.10 (which is 10%). The building would be worth $100,000.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
Capitalization, let's explore,
It's a way to find a property's value and more.
Take the money it makes, oh so grand,
Divide by the rate, you'll understand.
A building stood, tall and wide,
Rent was collected, from those inside.
Ten thousand dollars a year it did earn,
And a cap rate of ten, it's our turn.
Ten thousand dollars, we take with glee,
Divide by point one, oh, now we see!
One hundred thousand dollars, that's its worth,
Capitalization, it shows the property's girth!