<--Back to Wiki Home
Capitalization rate, or "cap rate," is a percentage that helps you figure out how good an investment a property is. It shows how much money the property makes compared to its value. A higher cap rate means the property is a better investment.
For example, if a building is worth $100,000 and earns $5,000 a year, the cap rate is 5%. To find this, you divide the income ($5,000) by the value ($100,000), which gives you 0.05, or 5%.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
Cap rate, cap rate, let's explore,
A percentage that helps you to know the score.
It tells you how good an investment might be,
Comparing income to value, oh, can't you see?
A building stands, valued so high,
One hundred thousand dollars, reaching for the sky.
Five thousand dollars, it makes each year,
Let's find the cap rate, my dear.
Five thousand divided by one hundred K,
Five percent, the cap rate does say.
A higher cap rate, the better to find,
A great investment, for your peace of mind!