Cap Rate - basic lingo for the real estate investor

If you don't know the term cap rate, consider yourself a real estate beginner. A basic way of measuring the profitability and price of a property is through a term called cap rate. It is basically dividing the annual income produced by a piece of property after expenses into the value. The goal of real estate investors will be to drive both components of the equation higher through raising rents and increased value of the property. When deciding on a property, you can compare the cap rate with other investments to determine if the risk and time commitment of purchasing the property makes financial sense. Your total return will be the cap rate plus the appreciation of the building which isn't realized until it sold.