Direct answer
What does Capitalization rate mean?
A rate that relates a property's net operating income to its value or price.
Exam cue: Use the IRV relationship: rate equals income divided by value, and value equals income divided by rate.
What does it look like in a question?
New York example
$72,000 of NOI divided by a $900,000 price produces an 8 percent cap rate.
Common exam trap
What should you not confuse it with?
Cap rate is not the mortgage interest rate or cash-on-cash return.
Related real estate math terms
AcreA land-area unit equal to 43,560 square feet.AreaThe amount of surface within a two-dimensional boundary.CommissionCompensation paid for brokerage services under an agreement.MillA property-tax rate unit equal to one dollar of tax per one thousand dollars of taxable value.PercentageA ratio expressed as a part of one hundred and written with the percent symbol.ProrationAllocation of income or expense between parties for their respective periods of ownership or responsibility.
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