Cap rate
Net operating income divided by the property's price or value. It shows the yearly return before financing and is used to compare properties and estimate value.
Also called: capitalization rate, cap rates
Related terms
A property's yearly income minus operating expenses, before mortgage payments and income taxes. It is the base number for cap rate and many commercial valuations.
Yearly pre-tax cash flow divided by the cash you actually put in, such as the down payment, closing costs and rehab. It shows the return on your own money when using a loan.
Valuing a property based on the income it produces, often by dividing net operating income by a cap rate. It is used mainly for rentals and commercial property.
Price divided by gross yearly rent. It is a quick screening tool for comparing rentals, but it ignores expenses and vacancy.
The total gain on an investment compared with what it cost, usually as a percentage. For real estate it can include cash flow, appreciation, loan paydown and tax effects.