There are many ways to calculate return on investment in real estate, and one of the most popular ones is the capitalization rate, or cap rate for short. If you are a beginner real estate investor, you might be wondering “What is cap rate?” and “How do you calculate the cap rate of an investment property?” In brief, the cap rate measures the rate of return of a rental property regardless of the method of financing (cash or mortgage). This is what makes cap rate different from the cash on cash return which takes into consideration the financing method. In a way, the cap rate evaluates the level of risk associated with a particular real estate investment.
If you are ready to learn all the basics of cap rate and calculating this metric of profitability in the real estate investing business, have a look at the infographic below. Our What Is Cap Rate and How to Calculate It? real estate infographic will show you:
- The cap rate definition in real estate investing
- The cap rate formula
- The most important factors which affect the cap rate of an investment property
- A cap rate calculation example
- The biggest advantage of using cap rate
- The biggest disadvantage of using cap rate
- What is a good cap rate for rental properties
This infographic was created by Venngage Infographic and Real Estate Brochure Maker.
In case you are just getting started in real estate and need some more help, you should check out our article The Beginner’s Guide to the Cap Rate Calculation in Real Estate. There you will find more details on each aspect of the cap rate highlighted in the real estate infographic above.
If you are ready to move forward with buying an investment property and would like to know what cap rates by city real estate investors can expect in 2019, read this blog. In addition, here you can figure out the highest cap rate cities for traditional rentals and for Airbnb rental properties in 2019.
To start looking for investment properties for sale with a high cap rate in any US housing market, sign up for Mashvisor. Within a matter of minutes, you will be able to find a profitable rental property which matches all your criteria in your location of choice. This will save you weeks and even months of work required to perform real estate market analysis and investment property analysis if you’re using spreadsheets only.