Cash & working capital
Cap Rate (Capitalization Rate)
Formula reviewed by Tahir Asif, CMA
Net operating income divided by purchase price — the unlevered annual return a property would generate bought entirely in cash.
Cap rate measures a property's income return independent of financing: NOI ÷ purchase price. A property with $18,000 in annual NOI bought for $300,000 has a 6% cap rate, meaning it would return 6% a year if purchased outright with no mortgage.
Because it strips out financing entirely, cap rate is the standard way to compare properties or markets on income potential alone — a levered metric like cash-on-cash return answers a related but different question about the actual cash invested after debt service.
Cap rate
Net operating income ÷ Purchase price
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