Term of the Day: Capitalization Rate

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	INVESTOPEDIA Term Of The Day October 5, 2015 Capitalization Rate Capitalization rate is the rate of return on a real estate investment  propertybased on the income that the property is expected to generate. The capitalization rate is used to estimate the investor's potential return on his or her investment. The capitalization rate of an investment may be calculated by dividing the investment's net operating income (NOI)  by the current market value of the property, where NOI is the annual return on the property minus all operating costs . The formula for calculating the capitalization rate can be expressed in the following way: Capitalization Rate = Net Operating Income / Current Market Value Some consider the capitalization rate to be, in essence, the discount rate of a perpetuity , though the use of perpetuity in this case may be slightly misleading as it implies cash flows will be steady on an annual basis. The capitalization rate is expressed as a percentage and is also often known as the "cap rate." Breaking It Down: The capitalization rate is very useful in that it streamlines information about real estate investments and... Read More Related to "Capitalization Rate" Simple Ways To Invest In Real Estate Buying real estate is about more than just finding a place to call home. Investing in real estate has become... Read More How Interest Rates Affect Property Values Interest rates, especially the rates on interbank exchanges and Treasury bills, have as profound an effect on... Read More Can Real Estate Stabilize Your Portfolio? Historically used as a more tactical investment or for providing portfolio alpha, real estate has been used as part of... Read More Recently Added Definitions Yield To Maturity (YTM) The total return anticipated on a bond if the bond is held until the end of its lifetime. Yield to maturity is considered a... Read More EBITA EBITA is an acronym for earnings before interest, taxes and amortization. To calculate a company's EBITA... Read More Related Definitions Perpetuity Capitalization Overcapitalization Dividend Discount Model - DDM Present Value - PV Past Terms of the Day Gross Profit Revenue Normal Profit Operating Cost Cost Of Funds You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe | Unsubscribe From All | Manage Profile Investopedia US, A Division of IAC. Copyright © 2015, Investopedia, LLC. All Rights Reserved Follow Us: