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.
Cash-on-Cash Return is a method of yield computation used for investments. It calculates the return on investment by dividing the annual dollar income by the total dollar invested. For example, a $10,000 investment that pays $1,000 annually has a 10% cash-on-cash return.
The Debt Coverage Ratio (DCR) is a financial metric used to evaluate the ability of an income property to cover its debt-related obligations, often applied in the underwriting of mortgage loans.
Income property refers to real estate acquired specifically for the income or cash flow it generates. It can be owned individually, by a company, or be part of a limited partnership, with buyers often aiming for long-term capital gains upon sale.
Repairs refer to work performed to return a property to its former condition without extending its useful life, distinguishing them from capital improvements. In the context of income property, repairs are an operating expense for accounting and tax purposes.
