Friday, May 5, 2017

Capitalization Rate

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate.

The capitalization rate of an investment may be calculated by dividing the investment’s net operating income (NOI) by the current market value of the property, where NOI is the annual return on the property minus all operating costs. The formula for calculating the capitalization rate can be expressed in the following way:

Capitalization Rate = Net Operating Income / Current Market Value

(via Investopedia)