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Capitalization rate is calculated as the ratio between the property’s net operating income (NOI) and the market price.
The term “cap rate” is short for “capitalization rate.”
It is based on a quick calculation that provides investors insight into a deal’s assumed profitability. The Cap rate is calculated as the ratio between the property’s net operating income (NOI) and the market price.
Cap rates tend to fall in the range of 3% to 10% depending on the asset, market dynamics and capital markets.