Define Cap Rate

Chris at Hauseit® (https://www.hauseit.com) goes over the question:Define Cap Rate. What is the cap rate in real estate parlance?

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What do real estate investors mean when they speak about a rental property's cap rate? What does it mean?

Well, Cap Rate is essentially the gross or asset yield of a rental property. It's the net operating income divided by the cost basis of the property.

Net operating income is essentially rental revenue minus operating expenses (so not including any financing costs or income taxes). The cost basis is the purchase price of the property plus the buyer's closing costs plus any renovations done post closing by the buyer.

We explore this mystery and explain further in the following video.
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Hauseit Group LLC, Licensed Real Estate Broker
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