CAP Rate for Commercial Real Estate Investor
CAP Rate provides a measure of ability for an income property to return an initial investment. CAP Rate is calculated by dividing the NOI (Net Operating Income) by the Value (Or Sales Price). The lower percentage CAP rates like 6% to 8% are usually assigned to lower risk investments with long term lease agreements and have solid real estate measures, such as a Wal-Greens on a corner with a traffic light. Higher CAP rates are generally higher risk investments that require more management such as small apartment buildings not on a major road.