As you are researching how to get into commercial investment, you may come across some terms that are unfamiliar to those new to the world of real estate. One of those terms, capitalization rate, refers to the approximate rate of return on a given property investment, or how quickly you will make money back on your investment. Needless to say, this is extremely important to calculate before you take the leap and invest a bunch of money, so aspiring real estate investors and agents will benefit from having a good cap rate calculator on hand at all times.
If you’re tired of putting off becoming an entrepreneur and you’re finally ready to dip your toes into commercial real estate investment, you need to know how to effectively use capitalization rate to your benefit. We’ve put together a comprehensive guide of everything you need to know about the cap rate in real estate.
What is Cap Rate?
A capitalization rate is calculated based on the yearly amount of income you believe you will earn on an investment property. It is the ratio of income to property value, which you’ll need to factor in when determining your budget for your real estate investment property. Capitalization rate can be helpful in comparing multiple potential investments and gathering information on how the properties function as businesses, as a real estate property may cost more upfront if it generates a higher rate of income or has less expense