Research guide
Cap Rate: Formula, Uses, and Common Mistakes
Understand what cap rate measures, what it leaves out, and why the same percentage can mean different things in different markets.
Cap rate is the relationship between stabilized net operating income and the property price. It is useful for comparing unlevered operating performance, but it does not include financing, income taxes, depreciation, or every capital event.
Keep the numerator consistent
NOI should reflect the operating assumptions you can defend. Do not mix owner expenses, debt service, capital improvements, or one-time acquisition costs into a metric you are comparing against market cap rates.
Read it with context
Market liquidity, property condition, tenant quality, lease terms, taxes, insurance, and exit assumptions all matter.
This guide is educational context. Verify current local facts and professional advice before making a decision.