CAP RATE, you certainly often read about it … what does that mean for your real estate investment?
The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. It’s a ratio commonly used in commercial real estate to size up your investment. Let’s say you buy property for $1,000,000 and this property generates a Net income of $100,000, the cap rate will be 10%.
In an all cash transaction, it represents the percentage of return an investor would receive. It gives you an idea of the level of risk of an investment or of the state of the market.
It averages around 7% in the Miami market. And it varies depending of the type of your investment (retail, office, multifamily, industrial…)