Capitalization Rate (Cap Rate)
The rate of return on an income property, equal to net operating income divided by value.
The capitalization rate measures the return on an income-producing property. It equals net operating income divided by value. Rearranged, value equals net operating income divided by the cap rate, which is the income approach to value.
Net operating income is income minus operating expenses. Mortgage payments (debt service) are never part of net operating income.
On the exam
Worked example
NOI of 72,000 divided by a 9 percent cap rate equals an 800,000 dollar value.
Exam trap
Tested in
Appraisal (8% of the exam)
From definition to recall
See this term inside a real exam question.
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This definition is Florida real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.