Cap rate is the annual net operating income as a percentage of the property's price — a quick way to compare the unleveraged return of different rental investments. Higher cap rate means more income per dollar invested (and usually more risk).
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Frequently asked questions
What is the cap rate formula?
Cap rate = net operating income ÷ property value × 100. NOI excludes mortgage payments.
What is a good cap rate?
It varies by market, but 5–10% is common for residential rentals; lower in prime areas, higher in riskier ones.