The Cap Rate, or Capitalization Rate, is a fundamental metric used in real estate to determine the rate of return on an investment property based on the income it is expected to generate.
Capitalization rate, often abbreviated as cap rate, is a rate of interest or discount rate used to convert a series of future payments into a single present value. In real estate, the rate includes annual capital recovery in addition to interest.
The Income Approach is a real estate appraisal method that estimates the value of a property by its anticipated future income. This approach is particularly useful for income-generating properties such as rental buildings, commercial properties, and investment properties.
The Overall Rate of Return (OAR) is a percentage relationship of net operating income (NOI) divided by the purchase price of a property. It is a metric used to assess the profitability of an investment.
In appraisal terminology, the recapture rate is the rate of recovery of an investment in a wasting asset. This rate is added to the discount rate to derive a capitalization rate.
