What is a cap rate?

A capitalization rate, often called a “cap rate,” is one method investors use to evaluate the potential return of an income-producing commercial property. It compares a property’s annual net operating income to its purchase price or value, providing a snapshot of investment performance.

Cap rates are only one part of evaluating an investment. Factors such as financing, future appreciation, tenant stability, market conditions, and property condition should also be considered when comparing opportunities.

If you’re evaluating commercial investment properties, I’d be happy to explain how cap rates fit into the overall decision-making process.