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Browse our investment glossary and get clear on key 1031 exchange, tax, financial, and investment-related terms.

What is Capitalization Rate? [Definition]

Capitalization Rate 
An investment offering's "cap rate" represents the annual net operating income received from an investment (prior to and excluding debt cost), divided by its purchase price or fair market value. Cap rate does not reflect the potential impact that financing can have on the cash flow. It differs from "cash-on-cash," which is the cash income received by an investor in return for the cash invested. Cash-on-cash does reflect the potential impact that financing can have on the cash flow. It is important to look at both metrics when evaluating an investment.

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