Cap Rate Is Not a Yield Promise
Interpret cap rate as an unlevered price measure and test its hidden assumptions.
A cap rate is a pricing lens, not a comfort blanket. Read the formula carefully Cap rate equals NOI divided by value. The formula strips out debt so properties can be compared before financing strategy. That is useful, but it also means a cap rate does not tell you cash-on-cash return, refinance risk, or whether the debt will work. Ask what income is being capitalized A cap rate on inflated or unstable NOI is a bad signal. Month-to-month leases, unusual reimbursements, deferred repairs, expiring tax abatements, or temporary concessions can make the numerator unreliable. Stabilized NOI needs a story and…
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