Houtan Hormozian explains what capitalization rate means in real estate. Cap rate is a valuation measure calculated as net operating income divided by original capital cost or current market value, and it represents the risk of the investment.
Get ready for question of the day. The capitalization rate on a property reflects which of these factors? A, real estate taxes. B, debt service. C, replacement cost of the improvements. D, risk of the investment. The answer is letter D. Capitalization rate is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by a asset and the original capital cost, or alternatively, its current market value. Learned something new? Give us a like, tag a friend, and let's keep the conversation going. Message us here or visit our website.
