What is Capitalisation Rate ?
The capitalization rate, commonly known as the cap rate, is a crucial metric in real estate investment that measures the relationship between a property's net operating income (NOI) and its market value or purchase price. It provides investors with a clear understanding of the potential return on investment by indicating the percentage return they can expect to receive annually from the property's income. A higher cap rate signifies a potentially higher return but may also indicate higher risk or lower property value, while a lower cap rate suggests a lower return but may reflect a safer investment or higher property value. Investors use cap rates to evaluate and compare different investment opportunities, considering factors such as property type, location, market trends, and risk tolerance to make informed decisions about real estate investments.
How to Calculate Capitalisation Rate?
Capitalisation Rate calculator uses Capitalisation Rate = (Net Operating Income/Current Market Value)*100 to calculate the Capitalisation Rate, The Capitalisation Rate is a measure used to evaluate the potential return on a real estate investment, calculated by dividing the property's net operating income (NOI) by its current market value or acquisition cost. Capitalisation Rate is denoted by r_{cap} symbol.
How to calculate Capitalisation Rate using this online calculator? To use this online calculator for Capitalisation Rate, enter Net Operating Income (NOI) & Current Market Value (CMV) and hit the calculate button. Here is how the Capitalisation Rate calculation can be explained with given input values -> 13.22222 = (59500/450000)*100.