Capitalization Rate

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Description of Capitalization Rate. Explanation.


Definition Capitalization Rate. Description.

The Capitalization Rate is a ratio used to determine the value of income producing properties. Capitalization Rates are used to figure out how much time will be needed to reach a certain level of profit upon an investment. Put simply, the "Cap Rate" is the net operating income divided by the sales price or value of a property expressed as a percentage. Investors, lenders and appraisers can use the Cap Rate to estimate the purchase price for different types of income producing properties.

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Compare also: Payback Period

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