# what does cap mean in real estate

Capitalization rate

• ### What is cap rate in real estate?

• Cap rate, or capitalization rate, is the ratio of a property’s net income to its purchase price. It’s an essential number for gauging a property’s rental income potential.

• ### How do you use the cap rate when evaluating rental properties?

• There are many ways to use the cap rate when evaluating rental properties. In general, you can think of the cap rate as an estimate that used to get the lay of the land for real estate investing. Examples of the different uses for a rental property cap rate calculator include:

• ### How do you calculate the cap rate of a company?

• Cap Rate Calculation Example The Capitalization Rate is the NOI divided by the purchase price and is represented as a percentage. Cap Rate = NOI / Purchase Price Now that you know the basic equations used to calculate the cap rate, below is an example to better illustrate how this is used.

• ### What is a build to cap rate?

• Build to cap rates is a concept that’s just a bit more advanced. The build to cap rate example can be used to determine if a deal is a go or no-go. You have a sponsor who wants to buy a piece of land for \$3 million and he wants to build apartments on it.