Also known as the capitalization rate, it is the rate of return that is expected to be generated on a real estate investment property. It is calculated by dividing the net operating income by the property asset value and is expressed as a percentage. It is used to estimate the investor’s potential return. However, it does not take into account leverage, the time value of money, and future cash flows from property improvements, among other factors.
Pertains to real estate, debt and equity offerings.« Back to Glossary Index