What is Cap Rate?
Cap rates are an indirect measure of how fast an investment will pay for itself. Cap rate is the ratio between the total net operating income and the original price paid to buy the investment. Cap rate is calculated by taking the annual net operating income and dividing it by cost or value.
Cap Rate = annual net operating income / cost ( or value).
$100,000 / $1,000,000 = 0.10 = 10%
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