Understanding Cap Rates

You hear the term “cap rate” all the time. Maybe you assume you understand it, or avoid admitting that you don’t. Whether you’re a beginner or experienced, a clear refresher is worth your time. This series breaks it down:

• What a cap rate actually is

• When and how to use it

• What the rate should be

• Common misconceptions

• And why it’s even called a “cap rate”

• Part 1: What is a Cap Rate? The basics or calculating and understanding cap rates

• Part 2: Why Does It Matter? It’s one number, but Sellers and Buyers see it differently

• Part 3: What’s the Right Cap Rate? How to determine the right cap rate for your property

• Parts 4A & 4B: What Everyone Gets Wrong. Conflating ROI with Cap Rate can add up to a lot of money

• Part 5: Where the Term Comes From