Cap Rate Calculation: How To Use Cap Rate In Real Estate?

Abstract

The ability of a property to repay its initial investment and generate income beyond that is measured by its capitalization rate. Cap Rate is defined as the rate of return on a rental investment property based on its income. This determines the investment's potential return on investment. The number to calculate this number is a before-tax figure, which is an estimation of an investor’s potential return. As Cap rate increases to 6.5%, it decreases the property value by $50,000. The cap rate increases. The Cap rate decreases the property value to $500,000 to $100,000 in a year.