The formula for the capitalization rate is calculated as net operating income divided by the current market value of the asset.The capitalization rate is a profitability metric used to determine the return on investment of a real estate property.Investors should be careful to consider a wide range of metrics in addition to the capitalization rate. However, there are also other factors to consider, such as risk and local market dynamics. A high cap rate indicates a relatively high income, relative to the size of the initial investment. The capitalization rate is used to measure the profitability of commercial rental properties. In other words, capitalization rate is a return metric that is used to determine the potential return on investment or payback of capital. A cap rate, otherwise known as a capitalization rate, is one of the most important fundamental indicators for determining whether a property is worth pursuing. Capitalization rate (or Cap Rate for short) is commonly used in real estate and refers to the rate of return on a property based on the net operating income (NOI) that the property generates.
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