Investor Encyclopedia

Cap Rate

Cap Rate: a practical Canadian real estate investor guide to definition, deal math, underwriting use, common traps, and Realist.ca implementation.

Definition

Cap rate is NOI divided by property value. It is the unlevered yield on the current income stream before debt.

Formula

Cap rate = NOI / property value.

Example

If a property has $120,000 of NOI and trades for $2,000,000, the cap rate is 6.0%.

Why It Matters

cap rate changes what a disciplined buyer can pay, how much debt the asset can safely carry, and whether the return is coming from operations or fragile assumptions.

Investor Interpretation

Use it to kill bad deals quickly. If the back-of-envelope version does not survive conservative assumptions, do not spend five hours making it look alive.

Realist Tie-In

Realist.ca can make cap rate searchable as an encyclopedia entry, link it to property underwriting, and show it beside listings, saved analyses, market pages, and investor lead magnets.