REAL ESTATE GLOSSARY
Cap Rate
Capitalization Rate
A property's net operating income divided by its value or purchase price.
What does Cap Rate mean?
A property's net operating income divided by its value or purchase price. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
Cap Rate in context
A property with $500,000 NOI valued at $8 million has a 6.25% cap rate.
Why it matters in financing
Cap Rate can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related real estate terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.