Real Estate & Mortgages
Intermediate

Capitalisation Rate

Annual return on a property from net operating income.

Formula

CR=NOIV×100CR = \frac{NOI}{V} \times 100

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Variables

CRCap rate (%)
NOINet operating income
VProperty value

Example

NOI=$24k, V=$400k: CR = 6%

Did You Know?

Investors use cap rate to compare properties the way stock investors use earnings yield.

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