Capitalization Rate

Cap Rate

A property's net operating income as a percentage of its price.

The capitalization rate (cap rate) is a rental property's annual net operating income divided by its price, expressed as a percentage. It is a quick way to compare income properties independent of financing. The catch is the word net: a cap rate is only honest if the income figure accounts for all real operating costs (vacancy, maintenance, management, insurance, property tax), which listing numbers often understate. Rebuild it yourself before trusting it.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.